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The term structure of interest rates and macroeconomic factors: Evidence from Indian financial market

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  • K. Hassan Shareef
  • Santhakumar Shijin

Abstract

The term structure of interest rate per-se is not impeccable for explaining the behavior of the future economic conditions and hence incorporating macro factors in the term structure model is more tractable. The study uses monthly data of macro factors for a period of eighteen years from April 1998 to May 2016. Using structural vector auto regression estimates, Granger causality/block exogeneity wald test along with impulse response functions and forecast error variance decomposition analysis the study tests the proportion of term structure attributable to macro-economic shocks. The findings of the study show that short term rates are mainly influenced by the fiscal deficit present in emerging economies while long term rates get affected when market participants revise their expectation on yields. In addition, the output growth of the country is mainly depended on long and short rates and exchange rate fluctuations have a significant role in the fiscal deficit of the country.

Suggested Citation

  • K. Hassan Shareef & Santhakumar Shijin, 2017. "The term structure of interest rates and macroeconomic factors: Evidence from Indian financial market," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 17(4), pages 249-256, December.
    • Handle: RePEc:bor:bistre:v:17:y:2017:i:4:p:249-256
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    Citations

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    Cited by:

    1. Elizondo Rocío, 2023. "The Three Intelligible Factors of the Yield Curve in Mexico," Working Papers 2023-13, Banco de México.
    2. Anshul Kumar & Agnirup Sarkar & Bodhisattva Sengupta, 2024. "Monetary and Fiscal Policy Impacts on the Indian Sovereign Bond Market: A VAR Approach," South Asian Journal of Macroeconomics and Public Finance, , vol. 13(2), pages 143-168, December.
    3. Oguzhan Cepni & Ibrahim Ethem Guney & Doruk Kucuksarac & Muhammed Hasan Yilmaz, 2018. "The Interaction between Yield Curve and Macroeconomic Factors," CBT Research Notes in Economics 1802, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

    More about this item

    Keywords

    Term structure of interest rates; Inflation; Output growth; NEER; Monetary policy rate;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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