What is it about?
This paper investigates the long-term determinants of the nominal yields of Indian government bonds (IGBs).
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Why is it important?
The findings reported in the paper 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.
Perspectives
The paper 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.
Dr Tanweer Akram
Citigroup Inc
Read the Original
This page is a summary of: The Long-Run Determinants of Indian Government Bond Yields, Asian Development Review, March 2019, The MIT Press,
DOI: 10.1162/adev_a_00127.
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