Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/173490 
Year of Publication: 
2017
Series/Report no.: 
Working Paper No. 881
Publisher: 
Levy Economics Institute of Bard College, Annandale-on-Hudson, NY
Abstract: 
This paper investigates the long-term determinants of Indian government bonds' (IGB) nominal yields. It examines whether John Maynard Keynes's supposition that short-term interest rates are the key driver of long-term government bond yields holds over the long-run horizon, after controlling for various key economic factors such as inflationary pressure and measures of economic activity. It also appraises whether the government finance variable-the ratio of government debt to nominal income-has an adverse effect on government bond yields over a long-run horizon. The models estimated here show that in India, short-term interest rates are the key driver of long-term government bond yields over the long run. However, the ratio of government debt and nominal income does not have any discernible adverse effect on yields over a long-run horizon. These findings will help policymakers in India (and elsewhere) to use information on the current trend in short-term interest rates, the federal fiscal balance, and other key macro variables to form their long-term outlook on IGB yields, and to understand the implications of the government's fiscal stance on the government bond market.
Subjects: 
Government Bond Yields
Interest Rates
Monetary Policy
India
JEL: 
E43
E50
E60
G10
G12
O16
Document Type: 
Working Paper

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