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The impact of monetary policy on corporate bonds in India

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  • Sensarma, Rudra
  • Bhattacharyya, Indranil

Abstract

We analyse the impact of monetary policy on the shape of the corporate yield curve and credit spread using a macro-finance approach. Instead of estimating the latent factors from the data on corporate bonds, we use market proxies of level, slope and curvature of the corporate yield curve and credit spread. The results demonstrate that while monetary policy has the dominant impact among macroeconomic variables on the entire term structure, it is particularly strong at the short end and on credit spreads. Changes in credit spreads, in turn, also influence monetary policy. The results are robust to alternative identification schemes and have important policy implications for further development of the corporate bond market, particularly in emerging market economies.

Suggested Citation

  • Sensarma, Rudra & Bhattacharyya, Indranil, 2016. "The impact of monetary policy on corporate bonds in India," Journal of Policy Modeling, Elsevier, vol. 38(3), pages 587-602.
    • Handle: RePEc:eee:jpolmo:v:38:y:2016:i:3:p:587-602
    DOI: 10.1016/j.jpolmod.2016.03.004
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    Cited by:

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    2. Lin, Saiyan & Chen, Rongda & Lv, Zhihong & Zhou, Tianqing & Jin, Chenglu, 2019. "Integrated measurement of liquidity risk and market risk of company bonds based on the optimal Copula model," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    3. Sur, Abhisek & Nandy, Amarendu & Ray, Partha, 2024. "Does foreign currency borrowing make firms vulnerable? Experience of emerging India," Journal of Policy Modeling, Elsevier, vol. 46(3), pages 530-551.
    4. Jakub Kubiczek, 2020. "Corporate Bond Market in Poland—Prospects for Development," JRFM, MDPI, vol. 13(12), pages 1-13, December.

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    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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