MIT Press

The ARDL bounds test results generated from monthly variables are presented in Tables 4–8. When the short-term interest rate is included with inflation, in most cases the computed F-statistic based on a Wald test exceeds the upper bound value at the 5% level. In the case of the 2-year government bond yield, the computed F-statistic exceeds the upper bound value at the 10% level when the short-term rate is included in the equation with both inflation and the industrial production index (equation 4.6). The null hypothesis of no cointegration is rejected whenever the F-statistic value is higher than the upper bound value. This analysis confirms the presence of a long-run relationship among long-term government bond yields, the short-term interest rate, the rate of inflation, and the growth of industrial production. It enables the estimation of the long-run coefficients of the short-term interest rate and other control variables. The coefficients of the short-term interest rate are always positive and statistically significant at the 1% level. The size of this coefficient tends to be smaller as the tenor of the government bond rises. These results suggest that in the long run the short-term interest rate strongly influences long-term government bond yields in India.

Table 4.

Autoregressive Distributive Lag Bounds Test Results for IGB2YR (monthly data)

Equation		F-statistic
4.1) IGB2YR = β₀ + β₁TB3M		3.93
4.2) IGB2YR = β₂ + β₃TCPIYOY		2.97
4.3) IGB2YR = β₄ + β₅IPIYOY		1.46
4.4) IGB2YR = β₆ + β₇TB3M + β₈TCPIYOY		6.52^**
4.5) IGB2YR = β₉ + β₁₀TB3M + β₁₁IPIYOY		2.99
4.6) IGB2YR = β₁₂ + β₁₃TB3M + β₁₄TCPIYOY + β₁₅IPIYOY		4.81^*
Long-Run Relationships
Variable	Equation 4.4	Equation 4.6
TB3M	0.51^***	0.51^***
	(0.04)	(0.05)
TCPIYOY	−0.01	−0.00
	(0.04)	(0.04)
IPIYOY	—	−0.00
		(0.01)
Constant	3.60^***	3.60^***
	(0.48)	(0.54)
Time period	Dec 2006–	Feb 2007–
	Oct 2015	Oct 2015
Number of observations	107	105

Equation		F-statistic
4.1) IGB2YR = β₀ + β₁TB3M		3.93
4.2) IGB2YR = β₂ + β₃TCPIYOY		2.97
4.3) IGB2YR = β₄ + β₅IPIYOY		1.46
4.4) IGB2YR = β₆ + β₇TB3M + β₈TCPIYOY		6.52^**
4.5) IGB2YR = β₉ + β₁₀TB3M + β₁₁IPIYOY		2.99
4.6) IGB2YR = β₁₂ + β₁₃TB3M + β₁₄TCPIYOY + β₁₅IPIYOY		4.81^*
Long-Run Relationships
Variable	Equation 4.4	Equation 4.6
TB3M	0.51^***	0.51^***
	(0.04)	(0.05)
TCPIYOY	−0.01	−0.00
	(0.04)	(0.04)
IPIYOY	—	−0.00
		(0.01)
Constant	3.60^***	3.60^***
	(0.48)	(0.54)
Time period	Dec 2006–	Feb 2007–
	Oct 2015	Oct 2015
Number of observations	107	105

IGB2YR = 2-year government bond yield, IPIYOY = year-on-year percentage change in industrial production, TB3M = 3-month government auction rate, TCPIYOY = year-on-year percentage change in consumer price index.

Notes: ^***, ^**, and ^* represent 1%, 5%, and 10% levels of significance, respectively. Standard errors are in parentheses. Lower bound values are 6.84, 4.94, and 4.04 for 1%, 5%, and 10% levels of significance, respectively. Upper bound values are 7.84, 5.73, and 4.78 for 1%, 5%, and 10% levels of significance, respectively.

Source: Authors’ calculations.

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Table 5.

Autoregressive Distributive Lag Bounds Test Results for IGB3YR (monthly data)

Equation		F-statistic
5.1) IGB3YR = β₁₆ + β₁₇TB3M		4.60
5.2) IGB3YR = β₁₈ + β₁₉TCPIYOY		2.64
5.3) IGB3YR = β₂₀ + β₂₁IPIYOY		2.03
5.4) IGB3YR = β₂₂ + β₂₃TB3M + β₂₄TCPIYOY		8.37^***
5.5) IGB3YR = β₂₅ + β₂₆TB3M + β₂₇IPIYOY		3.70
5.6) IGB3YR = β₂₈ + β₂₉TB3M + β₃₀TCPIYOY + β₃₁IPIYOY		6.20^**
Long-Run Relationships
Variable	Equation 5.4	Equation 5.6
TB3M	0.39^***	0.38^***
	(0.04)	(0.05)
TCPIYOY	−0.01	−0.01
	(0.04)	(0.04)
IPIYOY	—	−0.01
		(0.01)
Constant	4.74^***	4.81^***
	(0.47)	(0.55)
Time period	Dec 2006–	Feb 2007–
	Oct 2015	Oct 2015
Number of observations	107	105

Equation		F-statistic
5.1) IGB3YR = β₁₆ + β₁₇TB3M		4.60
5.2) IGB3YR = β₁₈ + β₁₉TCPIYOY		2.64
5.3) IGB3YR = β₂₀ + β₂₁IPIYOY		2.03
5.4) IGB3YR = β₂₂ + β₂₃TB3M + β₂₄TCPIYOY		8.37^***
5.5) IGB3YR = β₂₅ + β₂₆TB3M + β₂₇IPIYOY		3.70
5.6) IGB3YR = β₂₈ + β₂₉TB3M + β₃₀TCPIYOY + β₃₁IPIYOY		6.20^**
Long-Run Relationships
Variable	Equation 5.4	Equation 5.6
TB3M	0.39^***	0.38^***
	(0.04)	(0.05)
TCPIYOY	−0.01	−0.01
	(0.04)	(0.04)
IPIYOY	—	−0.01
		(0.01)
Constant	4.74^***	4.81^***
	(0.47)	(0.55)
Time period	Dec 2006–	Feb 2007–
	Oct 2015	Oct 2015
Number of observations	107	105

IGB3YR = 3-year government bond yield, IPIYOY = year-on-year percentage change in industrial production, TB3M = 3-month government auction rate, TCPIYOY = year-on-year percentage change in consumer price index.

Notes: ^*** and ^** represent 1% and 5% levels of significance, respectively. Standard errors are in parentheses. Lower bound values are 6.84, 4.94, and 4.04 for 1%, 5%, and 10% levels of significance, respectively. Upper bound values are 7.84, 5.73, and 4.78 for 1%, 5%, and 10% levels of significance, respectively.

Source: Authors’ calculations.

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Table 6.

Autoregressive Distributive Lag Bounds Test Results for IGB5YR (monthly data)

Equation		F-statistic
6.1) IGB5YR = β₃₂ + β₃₃TB3M		3.84
6.2) IGB5YR = β₃₄ + β₃₅TCPIYOY		3.65
6.3) IGB5YR = β₃₆ + β₃₇IPIYOY		2.37
6.4) IGB5YR = β₃₈ + β₃₉TB3M + β₄₀TCPIYOY		10.56^***
6.5) IGB5YR = β₄₁ + β₄₂TB3M + β₄₃IPIYOY		4.08
6.6) IGB5YR = β₄₄ + β₄₅TB3M + β₄₆TCPIYOY + β₄₇IPIYOY		7.74^**
Long-Run Relationships
Variable	Equation 6.4	Equation 6.6
TB3M	0.26^***	0.25^***
	(0.04)	(0.04)
TCPIYOY	−0.00	−0.00
	(0.04)	(0.04)
IPIYOY	—	−0.01
		(0.01)
Constant	5.86^***	5.98^***
	(0.43)	(0.53)
Time period	Dec 2006–	Feb 2007–
	Oct 2015	Oct 2015
Number of observations	107	105

Equation		F-statistic
6.1) IGB5YR = β₃₂ + β₃₃TB3M		3.84
6.2) IGB5YR = β₃₄ + β₃₅TCPIYOY		3.65
6.3) IGB5YR = β₃₆ + β₃₇IPIYOY		2.37
6.4) IGB5YR = β₃₈ + β₃₉TB3M + β₄₀TCPIYOY		10.56^***
6.5) IGB5YR = β₄₁ + β₄₂TB3M + β₄₃IPIYOY		4.08
6.6) IGB5YR = β₄₄ + β₄₅TB3M + β₄₆TCPIYOY + β₄₇IPIYOY		7.74^**
Long-Run Relationships
Variable	Equation 6.4	Equation 6.6
TB3M	0.26^***	0.25^***
	(0.04)	(0.04)
TCPIYOY	−0.00	−0.00
	(0.04)	(0.04)
IPIYOY	—	−0.01
		(0.01)
Constant	5.86^***	5.98^***
	(0.43)	(0.53)
Time period	Dec 2006–	Feb 2007–
	Oct 2015	Oct 2015
Number of observations	107	105

IGB5YR = 5-year government bond yield, IPIYOY = year-on-year percentage change in industrial production, TB3M = 3-month government auction rate, TCPIYOY = year-on-year percentage change in consumer price index.

Source: Authors’ calculations.

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Table 7.

Autoregressive Distributive Lag Bounds Test Results for IGB7YR (monthly data)

Equation			F-statistic
7.1) IGB7YR = β₄₈ + β₄₉TB3M			4.02
7.2) IGB7YR = β₅₀ + β₅₁TCPIYOY			5.63
7.3) IGB7YR = β₅₂ + β₅₃IPIYOY			2.59
7.4) IGB7YR = β₅₄ + β₅₅TB3M + β₅₆TCPIYOY			10.60^***
7.5) IGB7YR = β₅₇ + β₅₈TB3M + β₅₉IPIYOY			4.09
7.6) IGB7YR = β₆₀ + β₆₁TB3M + β₆₂TCPIYOY + β₆₃IPIYOY			7.70^**
Long-Run Relationships
Variable	Equation 7.2	Equation 7.4	Equation 7.6
TB3M	—	0.19^***	0.18^***
		(0.03)	(0.04)
TCPIYOY	0.03	0.02	0.01
	(0.08)	(0.04)	(0.04)
IPIYOY	—	—	−0.01
			(0.01)
Constant	7.71^***	6.40^***	6.53^***
	(0.62)	(0.43)	(0.52)
Time period	Dec 2006–	Dec 2006–	Feb 2007–
	Oct 2015	Oct 2015	Oct 2015
Number of observations	107	107	105

Equation			F-statistic
7.1) IGB7YR = β₄₈ + β₄₉TB3M			4.02
7.2) IGB7YR = β₅₀ + β₅₁TCPIYOY			5.63
7.3) IGB7YR = β₅₂ + β₅₃IPIYOY			2.59
7.4) IGB7YR = β₅₄ + β₅₅TB3M + β₅₆TCPIYOY			10.60^***
7.5) IGB7YR = β₅₇ + β₅₈TB3M + β₅₉IPIYOY			4.09
7.6) IGB7YR = β₆₀ + β₆₁TB3M + β₆₂TCPIYOY + β₆₃IPIYOY			7.70^**
Long-Run Relationships
Variable	Equation 7.2	Equation 7.4	Equation 7.6
TB3M	—	0.19^***	0.18^***
		(0.03)	(0.04)
TCPIYOY	0.03	0.02	0.01
	(0.08)	(0.04)	(0.04)
IPIYOY	—	—	−0.01
			(0.01)
Constant	7.71^***	6.40^***	6.53^***
	(0.62)	(0.43)	(0.52)
Time period	Dec 2006–	Dec 2006–	Feb 2007–
	Oct 2015	Oct 2015	Oct 2015
Number of observations	107	107	105

IGB7YR = 7-year government bond yield, IPIYOY = year-on-year percentage change in industrial production, TB3M = 3-month government auction rate, TCPIYOY = year-on-year percentage change in consumer price index.

Source: Authors’ calculations.

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Table 8.

Autoregressive Distributive Lag Bounds Test Results for IGB10YR (monthly data)

Equation			F-statistic
8.1) IGB10YR = β₆₄ + β₆₅TB3M			4.73
8.2) IGB10YR = β₆₆ + β₆₇TCPIYOY			7.51^**
8.3) IGB10YR = β₆₈ + β₆₉IPIYOY			3.60
8.4) IGB10YR = β₇₀ + β₇₁TB3M + β₇₂TCPIYOY			9.42^***
8.5) IGB10YR = β₇₃ + β₇₄TB3M + β₇₅IPIYOY			3.07
8.6) IGB10YR = β₇₆ + β₇₇TB3M + β₇₈TCPIYOY + β₇₉IPIYOY			6.83^**
Long-Run Relationships
Variable	Equation 8.2	Equation 8.4	Equation 8.6
TB3M	—	0.14^***	0.13^***
		(0.04)	(0.04)
TCPIYOY	0.04	0.03	0.02
	(0.05)	(0.04)	(0.04)
IPIYOY	—	—	−0.01
			(0.01)
Constant	7.74^***	6.87^***	6.99^***
	(0.45)	(0.44)	(0.53)
Time period	Dec 2006–	Dec 2006–	Feb 2007–
	Oct 2015	Oct 2015	Oct 2015
Number of observations	107	107	105

Equation			F-statistic
8.1) IGB10YR = β₆₄ + β₆₅TB3M			4.73
8.2) IGB10YR = β₆₆ + β₆₇TCPIYOY			7.51^**
8.3) IGB10YR = β₆₈ + β₆₉IPIYOY			3.60
8.4) IGB10YR = β₇₀ + β₇₁TB3M + β₇₂TCPIYOY			9.42^***
8.5) IGB10YR = β₇₃ + β₇₄TB3M + β₇₅IPIYOY			3.07
8.6) IGB10YR = β₇₆ + β₇₇TB3M + β₇₈TCPIYOY + β₇₉IPIYOY			6.83^**
Long-Run Relationships
Variable	Equation 8.2	Equation 8.4	Equation 8.6
TB3M	—	0.14^***	0.13^***
		(0.04)	(0.04)
TCPIYOY	0.04	0.03	0.02
	(0.05)	(0.04)	(0.04)
IPIYOY	—	—	−0.01
			(0.01)
Constant	7.74^***	6.87^***	6.99^***
	(0.45)	(0.44)	(0.53)
Time period	Dec 2006–	Dec 2006–	Feb 2007–
	Oct 2015	Oct 2015	Oct 2015
Number of observations	107	107	105

IGB10YR = 10-year government bond yield, IPIYOY = year-on-year percentage change in industrial production, TB3M = 3-month government auction rate, TCPIYOY = year-on-year percentage change in consumer price index.

Source: Authors’ calculations.

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