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Modeling interest rate cycles in India

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  • Bhattacharya, B.B.
  • Bhanumurthy, N.R.
  • Mallick, Hrushikesh

Abstract

The present study tries to examine the behaviour of various Indian interest rates such as call money rate, and yields on secondary market securities with maturity periods of 15-91 days, 1-year, 5-years and 10-years. In the first stage, the study investigates the determinants of interest rates and finds that although the interest rates depend on some domestic macroeconomic variables such as yield spread and expected exchange rate, they are mainly affected by the movements of international interest rates, although with some lags. The policy variables such as Bank Rate and Federal Funds Rate did not show any significant impact on any of the interest rates. Further, it was found that the interest rates in the very recent period show some cyclical movements similar to that of the developed countries. Future behaviour of interest rates show that the present cycle of each interest rate would peak at different time points. This expected behaviour in domestic interest rates could be due to the integration of the domestic economy with the international money and financial market. This trend may be same in most of the emerging economies of Asia.

Suggested Citation

  • Bhattacharya, B.B. & Bhanumurthy, N.R. & Mallick, Hrushikesh, 2008. "Modeling interest rate cycles in India," Journal of Policy Modeling, Elsevier, vol. 30(5), pages 899-915.
  • Handle: RePEc:eee:jpolmo:v:30:y:2008:i:5:p:899-915
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    References listed on IDEAS

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    1. Sebastian Edwards & Mohsin S. Khan, 1985. "Interest Rate Determination in Developing Countries: A Conceptual Framework (Détermination du taux d'intérêt dans les pays en développement: cadre théorique) (Determinación de los tipos de inter," IMF Staff Papers, Palgrave Macmillan, vol. 32(3), pages 377-403, September.
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    4. Robert G. King & Mau-Ting Lin, 2005. "Reexamining the monetarist critique of interest rate rules," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 513-530.
    5. Raghbendra Jha, 2002. "The downward rigidity of Indian interest rates," ASARC Working Papers 2002-01, The Australian National University, Australia South Asia Research Centre.
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    7. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    8. Kim, Jung-Kwan & Ratti, Ronald A., 2006. "Economic activity, foreign exchange rate, and the interest rate during the Asian crisis," Journal of Policy Modeling, Elsevier, vol. 28(4), pages 387-402, May.
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    Cited by:

    1. Ghosh, Sajal, 2010. "High speed diesel consumption and economic growth in India," Energy, Elsevier, vol. 35(4), pages 1794-1798.
    2. Pasrun Adam, 2016. "The Response of Bank of Indonesia’s Interest Rates to the Prices of World Crude Oil and Foreign Interest Rates," International Journal of Energy Economics and Policy, Econjournals, vol. 6(2), pages 266-272.
    3. Ghosh, Sajal, 2010. "Examining carbon emissions economic growth nexus for India: A multivariate cointegration approach," Energy Policy, Elsevier, vol. 38(6), pages 3008-3014, June.
    4. Sajal Ghosh & Rohit Prasad, 2012. "Telephone penetrations and economic growth: evidence from India," Netnomics, Springer, vol. 13(1), pages 25-43, April.
    5. Ghosh, Sajal, 2009. "Electricity supply, employment and real GDP in India: evidence from cointegration and Granger-causality tests," Energy Policy, Elsevier, vol. 37(8), pages 2926-2929, August.
    6. repec:spr:fininn:v:3:y:2017:i:1:d:10.1186_s40854-017-0075-8 is not listed on IDEAS
    7. Holtemöller, Oliver & Mallick, Sushanta, 2015. "Global Food Prices and Business Cycle Dynamics in an Emerging Market Economy," IWH Discussion Papers 15/2015, Halle Institute for Economic Research (IWH).
    8. Holtemöller, Oliver & Mallick, Sushanta, 2016. "Global food prices and monetary policy in an emerging market economy: The case of India," Journal of Asian Economics, Elsevier, vol. 46(C), pages 56-70.
    9. Bozhechkova, A.V. & Sinelnikova-Muryleva, Elena Vladimirovna, 2016. "The Impact of Higher Interest Rates on Loans to the Economic Growth of the Russian Federation in the Current Environment," Working Papers 21310, Russian Presidential Academy of National Economy and Public Administration.

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