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The Term Structure of Interest Rates in India: Evidence from the Post-Liberalization Period (1996-2013). -La struttura a termine dei tassi di interesse in India: una analisi empirica sul recente periodo di liberalizzazione dei mercati finanziari (1996-2013)

Author

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  • Tronzano, Marco

    (Università degli Studi di Genova, Scuola di Scienze Sociali, Dipartimento di Economia)

Abstract

This paper examines the validity of the Expectations Hypothesis of the term structure in India during the recent post-liberalization period. Overall, the empirical evidence provides substantial support for a cointegrating relationship across all assets maturities, and documents one-to-one comovements between short and long-term interest rates. The “Pure” version of the Expectations Hypothesis, however, is strongly rejected due to the existence of significant risk premia components at all temporal horizons. VECM causality tests reveal that, in most cases, the short-term policy rate is strongly exogenous. This last result confirms the validity of the current monetary policy strategy relying on a short-term policy target, suggesting that it should mainly focus on the management of longer term assets maturities. - L’articolo analizza la validità della “Expectations Hypothesis” sulla struttura a termine dei tassi di interesse in India a partire dal recente periodo di liberalizzazione dei mercati finanziari. Nel complesso, si riscontra un notevole supporto empirico per l’esistenza di una relazione di cointegrazione a tutte le scadenze temporali, e si documenta una relazione di equi-proporzionalità tra la dinamica dei tassi di interesse a breve e quella dei tassi di interesse a lungo termine. La versione più stringente della teoria (“Pure Expectations Hypothesis”) viene invece respinta, a causa di significative componenti di premio per il rischio a tutte le scadenze temporali. I tests di causalità condotti nell’ambito di modelli vettoriali di correzione dell’errore mostrano che, nella maggior parte dei casi, il tasso di interesse alla scadenza più breve (assunto come proxy del tasso controllato dalla Banca Centrale) è fortemente esogeno. Quest’ultimo risultato conferma la validità della attuale strategia di politica monetaria basata sul controllo di un tasso di interesse a breve, e suggerisce che tale strategia dovrebbe prevalentemente concentrarsi sulla gestione dei tassi di interesse a medio-lungo termine.

Suggested Citation

  • Tronzano, Marco, 2015. "The Term Structure of Interest Rates in India: Evidence from the Post-Liberalization Period (1996-2013). -La struttura a termine dei tassi di interesse in India: una analisi empirica sul recente perio," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 68(2), pages 275-295.
    • Handle: RePEc:ris:ecoint:0755
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    References listed on IDEAS

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    More about this item

    Keywords

    Term Structure of Interest Rates; Cointegration; India;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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