The Long-Run Determinants of Indian Government Bond Yields

Asian Development Review 36:1 March 2019

38 Pages Posted: 27 Mar 2019

See all articles by Tanweer Akram

Tanweer Akram

General Motors

Anupam Das

Mount Royal University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 4, 2019

Abstract

This paper investigates the long-term determinants of the nominal yields of Indian government bonds (IGBs). It examines whether John Maynard Keynes’ supposition that the short-term interest rate is the key driver of the long-term government bond yield holds over the long run, after controlling for key economic factors. It also appraises if the government fiscal variable has an adverse effect on government bond yields over the long run. The models estimated in this paper show that in India the short-term interest rate is the key driver of the long-term government bond yield over the long run. However, the government debt ratio does not have any discernible adverse effect on IGB yields over the long run. These findings will help policy makers to (i) use information on the current trend of the short-term interest rate and other key macro variables to form their long-term outlook about IGB yields, and (ii) understand the policy implications of the government’s fiscal stance.

Keywords: government bond yields, India, interest rates, monetary policy

JEL Classification: E43, E50, E60, G10, O16

Suggested Citation

Akram, Tanweer and Das, Anupam, The Long-Run Determinants of Indian Government Bond Yields (March 4, 2019). Asian Development Review 36:1 March 2019, Available at SSRN: https://ssrn.com/abstract=3346735

Tanweer Akram (Contact Author)

General Motors ( email )

300 Renaissance Center
Detroit, MI 48243

Anupam Das

Mount Royal University - Department of Economics ( email )

4825 Mount Royal Gate SW
Calgary, T3E 6K6
Canada

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