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The Macrodynamics of Indian Rupee Swap Yields

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  • Tanweer Akram
  • Khawaja Mamun

Abstract

This paper econometrically models the dynamics of Indian rupee (INR) swap yields based on key macroeconomic factors using the autoregressive distributive lag (ARDL) approach. It examines whether the short-term interest rate has a decisive influence on long-term INR swap yields after controlling for other factors, such as core inflation, the growth of industrial production, the logarithm of the equity price index, and the logarithm of the INR exchange rate. The estimated models show that the short-term interest rate has an important influence on the swap yields. This implies that the Reserve Bank of India (RBI) can sway borrowing and lending rates not just on Indian government bonds but also INR-denominated private-market financial instruments, such as swaps and swaptions.

Suggested Citation

  • Tanweer Akram & Khawaja Mamun, 2023. "The Macrodynamics of Indian Rupee Swap Yields," Economics Working Paper Archive wp_1020, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_1020
    as

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    References listed on IDEAS

    as
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    2. repec:cup:jfinqa:v:46:y:2011:i:06:p:1727-1754_00 is not listed on IDEAS
    3. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    4. Chernenko, Sergey & Faulkender, Michael, 2011. "The Two Sides of Derivatives Usage: Hedging and Speculating with Interest Rate Swaps," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(6), pages 1727-1754, December.
    5. Hrishikesh Vinod & Lekha S. Chakraborty & Honey Karun, 2014. "If Deficits Are Not the Culprit, What Determines Indian Interest Rates? An Evaluation Using the Maximum Entropy Bootstrap Method," Economics Working Paper Archive wp_811, Levy Economics Institute.
    6. Bindseil, Ulrich, 2004. "Monetary Policy Implementation: Theory, past, and present," OUP Catalogue, Oxford University Press, number 9780199274543.
    7. Ilias Lekkos & Costas Milas, 2001. "Identifying the Factors that Affect Interest‐Rate Swap Spreads: Some Evidence from the United States and the United Kingdom," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 21(8), pages 737-768, August.
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    Keywords

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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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