Skip to main content
Top

03-05-2024 | Original Article

Asymmetric Impact of Monetary Policy on 10-Year G-Sec Yield in India

Authors: Saksham Sood, Bichitrananda Seth, Samir Ranjan Behera, Deba Prasad Rath

Published in: Journal of Quantitative Economics

Login to get access

Activate our intelligent search to find suitable subject content or patents.

search-config
loading …

Abstract

This paper examines the asymmetric impact of monetary policy on central government’s 10-year g-sec yield using a non-linear autoregressive distributed lag model for the period Q1:2001–02 to Q4:2019–20. We find that monetary policy transmission to 10-year g-sec yield is partial and asymmetric in the long-run. A percentage point increase in the weighted average overnight call money rate (WACR) is, on an average, associated with 36–37 basis points rise in g-sec yield, whereas a percentage point fall in WACR leads to decrease in g-sec yield by 29–30 basis points. In the short-run, the asymmetric impact of WACR on the g-sec yield, though less conclusive, ranges between 18 and 20 basis points when WACR increases and 14–18 basis points when WACR decreases. The model includes market borrowings, GDP growth, crude oil price / inflation and yield on 10-year US government bonds as control variables. Our findings bear implications for monetary policy transmission to the real economy as well as for the market borrowing decisions of the fiscal authorities.

To get access to this content you need the following product:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 340 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Versicherung + Risiko




Jetzt Wissensvorsprung sichern!

Literature
go back to reference Acharya, V.V. 2017. Monetary Transmission in India: Why is it important and why hasn’t it worked well?, Inaugural Speech delivered at the Aveek Guha Memorial Lecture organised by Tata Institute of Fundamental Research (TIFR) at Homi Bhabha Auditorium, Mumbai, November 16. Acharya, V.V. 2017. Monetary Transmission in India: Why is it important and why hasn’t it worked well?, Inaugural Speech delivered at the Aveek Guha Memorial Lecture organised by Tata Institute of Fundamental Research (TIFR) at Homi Bhabha Auditorium, Mumbai, November 16.
go back to reference Akram, T., and A. Das. 2017. The long-run determinants of Indian government bond yields. Asian Development Review 36 (1): 168–205.CrossRef Akram, T., and A. Das. 2017. The long-run determinants of Indian government bond yields. Asian Development Review 36 (1): 168–205.CrossRef
go back to reference Bhattacharyya, I., and R. Sensarma. 2008. How effective are monetary policy signals in India? Journal of Policy Modeling 30 (1): 169–183.CrossRef Bhattacharyya, I., and R. Sensarma. 2008. How effective are monetary policy signals in India? Journal of Policy Modeling 30 (1): 169–183.CrossRef
go back to reference Browne, F., and P. Manasse. 1990. The information content of the term structure of interest rates: Theory and evidence. OECD Economic Studies 14: 59–86. Browne, F., and P. Manasse. 1990. The information content of the term structure of interest rates: Theory and evidence. OECD Economic Studies 14: 59–86.
go back to reference Chundakkadan, R., and S. Sasidharan. 2019. Liquidity pull-back and predictability of government security yield volatility. Economic Modelling 77: 124–132.CrossRef Chundakkadan, R., and S. Sasidharan. 2019. Liquidity pull-back and predictability of government security yield volatility. Economic Modelling 77: 124–132.CrossRef
go back to reference Das, S. 2020. Seven ages of India’s monetary policy. Speech delivered at St. Stephen's College, University of Delhi, Delhi, 24 January. Das, S. 2020. Seven ages of India’s monetary policy. Speech delivered at St. Stephen's College, University of Delhi, Delhi, 24 January.
go back to reference Dua, P., and N. Raje. 2014. Determination of yields on government securities in India. The Journal of Applied Economic Research 8: 375–400. Dua, P., and N. Raje. 2014. Determination of yields on government securities in India. The Journal of Applied Economic Research 8: 375–400.
go back to reference Dua, P. 2020. Monetary Policy Framework in India. Indian Economic Review. Singapore: Springer Nature Singapore. Dua, P. 2020. Monetary Policy Framework in India. Indian Economic Review. Singapore: Springer Nature Singapore.
go back to reference Goyal, A. 2019. Price discovery in Indian government securities market, Monetary Management and the Cost of Government Borrowing. Indira Gandhi Institute of Development Research, WP-2019-007. Goyal, A. 2019. Price discovery in Indian government securities market, Monetary Management and the Cost of Government Borrowing. Indira Gandhi Institute of Development Research, WP-2019-007.
go back to reference Gruber, J.W., and Kamin S.B. 2010. Fiscal positions and government bond yields in OECD Countries. International Finance Discussion Papers, Board of Governors of the Federal Reserve System. Number 1011. Gruber, J.W., and Kamin S.B. 2010. Fiscal positions and government bond yields in OECD Countries. International Finance Discussion Papers, Board of Governors of the Federal Reserve System. Number 1011.
go back to reference Kapur, M., J. John, and P. Mitra. 2018. Monetary policy and yields on government securities. Mint Street Memo 16: 1–11, Reserve Bank of India. Kapur, M., J. John, and P. Mitra. 2018. Monetary policy and yields on government securities. Mint Street Memo 16: 1–11, Reserve Bank of India.
go back to reference Krishna, G.D., and B. Nag. 2018. Long-run determinants of sovereign bond yields. Economic and Political Weekly 53 (13): 111–19. Krishna, G.D., and B. Nag. 2018. Long-run determinants of sovereign bond yields. Economic and Political Weekly 53 (13): 111–19.
go back to reference Mishkin, F. 2012. The economics of money, banking, and financial markets. London: Pearson. Mishkin, F. 2012. The economics of money, banking, and financial markets. London: Pearson.
go back to reference Mitra, A.K. and Chattopadhyay, S.K. 2020. Monetary policy transmission in India—Recent trends and impediments. Reserve Bank of India Bulletin. March pp. 11–26. Mitra, A.K. and Chattopadhyay, S.K. 2020. Monetary policy transmission in India—Recent trends and impediments. Reserve Bank of India Bulletin. March pp. 11–26.
go back to reference Mohan, R. 2006. Monetary policy transmission in India presented at the Deputy Governor's Meeting on "Transmission Mechanisms for Monetary Policy in Emerging Market Economies—What is New?". Basel: Bank for International Settlements. December. Mohan, R. 2006. Monetary policy transmission in India presented at the Deputy Governor's Meeting on "Transmission Mechanisms for Monetary Policy in Emerging Market Economies—What is New?". Basel: Bank for International Settlements. December.
go back to reference Perovic, L.M. 2015. The impact of fiscal positions on government bond yields in CEE countries. Economic Systems 39 (2015): 301–316.CrossRef Perovic, L.M. 2015. The impact of fiscal positions on government bond yields in CEE countries. Economic Systems 39 (2015): 301–316.CrossRef
go back to reference Pesaran, M.H., and Y. Shin. 1999. An autoregressive distributed lag modelling approach to cointegration analysis. In Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium, ed. S. Strom. Cambridge: Cambridge University Press. Pesaran, M.H., and Y. Shin. 1999. An autoregressive distributed lag modelling approach to cointegration analysis. In Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium, ed. S. Strom. Cambridge: Cambridge University Press.
go back to reference Pesaran, M.H., Y. Shin, and R.J. Smith. 2001. Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics 16: 289–326.CrossRef Pesaran, M.H., Y. Shin, and R.J. Smith. 2001. Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics 16: 289–326.CrossRef
go back to reference Poghosyan, T. (2012). Long-run and short-run determinants of sovereign bond yields in advanced economies. International Monetary Fund, WP /12/271. Poghosyan, T. (2012). Long-run and short-run determinants of sovereign bond yields in advanced economies. International Monetary Fund, WP /12/271.
go back to reference RBI. 2007. Report on Currency and Finance 2005–06, May 31. RBI. 2007. Report on Currency and Finance 2005–06, May 31.
go back to reference RBI. 2021. Report on Currency and Finance 2020–21. February 26. RBI. 2021. Report on Currency and Finance 2020–21. February 26.
go back to reference Remolona, E. M., Dziwura, J and Pedreza, I. 1995. The short end of the forward curve and asymmetric cat's tail convergence. Federal Reserve Bank of New York, Research Document, No. 9523, October. Remolona, E. M., Dziwura, J and Pedreza, I. 1995. The short end of the forward curve and asymmetric cat's tail convergence. Federal Reserve Bank of New York, Research Document, No. 9523, October.
go back to reference Roley, V.V., and G.H. Sellon Jr. 1995. Monetary policy actions and long-term interest rates. Federal Reserve Bank of Kansas City Economic Review 80: 73–89. Roley, V.V., and G.H. Sellon Jr. 1995. Monetary policy actions and long-term interest rates. Federal Reserve Bank of Kansas City Economic Review 80: 73–89.
go back to reference Shin, Y., B. Yu, and M. Greenwood-Nimmo. 2014. Modelling asymmetric cointegration and dynamic multipliers in an ARDL framework. In Festschrift in Honor of Peter Schmidt, ed. William C. Horrace and Robin C. Sickles. New York: Springer Science & Business Media. Shin, Y., B. Yu, and M. Greenwood-Nimmo. 2014. Modelling asymmetric cointegration and dynamic multipliers in an ARDL framework. In Festschrift in Honor of Peter Schmidt, ed. William C. Horrace and Robin C. Sickles. New York: Springer Science & Business Media.
go back to reference Singh, B. 2011. How asymmetric is monetary policy transmission to financial markets in India? Reserve Bank of India Occasional Papers 32 (2): 1–37. Singh, B. 2011. How asymmetric is monetary policy transmission to financial markets in India? Reserve Bank of India Occasional Papers 32 (2): 1–37.
go back to reference Tillmann, P. 2019. Monetary policy uncertainty and the response of the yield curve to policy shocks. Journal of Money, Credit and Banking. Tillmann, P. 2019. Monetary policy uncertainty and the response of the yield curve to policy shocks. Journal of Money, Credit and Banking.
Metadata
Title
Asymmetric Impact of Monetary Policy on 10-Year G-Sec Yield in India
Authors
Saksham Sood
Bichitrananda Seth
Samir Ranjan Behera
Deba Prasad Rath
Publication date
03-05-2024
Publisher
Springer India
Published in
Journal of Quantitative Economics
Print ISSN: 0971-1554
Electronic ISSN: 2364-1045
DOI
https://doi.org/10.1007/s40953-024-00395-w

Premium Partner