US QE and the Indian Bond Market

Moumita Paul () and Kalluru Siva Reddy ()
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Moumita Paul: Institute of Politics and Economics
Kalluru Siva Reddy: Institute of Politics and Economics

Journal of Quantitative Economics, 2022, vol. 20, issue 1, No 6, 137-157

Abstract: Abstract This paper examines the long- and short-run spillover effects of US quantitative easing (QE) on the benchmark 10-year Indian government bond (IGB) yield by Autoregressive Distributed Lag (ARDL) bounds testing co-integration approach using monthly data from September 2008 to June 2019. The results show that a 10%-point rise in US QE led to a 4 bp rise in yields. The counterfactual analysis shows that volatility of the yields would have been less without the QE. During the episodes of QE, the Reserve Bank of India (RBI) had to alter its policy rate and engage in open-market operations (OMOs) to simultaneously maintain liquidity in the system and reduce the volatility of interest rates. Spillover on the debt yield leads to mispricing of assets and partial loss of the monetary-policy autonomy of the RBI.

Keywords: Global spillover; Financial crisis; Monetary policy; Quantitative easing; Bond market (search for similar items in EconPapers)
JEL-codes: E52 E58 G01 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s40953-021-00257-9

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