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.

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.

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.

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.

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.

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.

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.

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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