Revisiting the role of fiscal policy in determining interest rate in India

Ranjan Kumar Mohanty and N R Bhanumurthy

Journal of the Asia Pacific Economy, 2021, vol. 26, issue 2, 293-318

Abstract: The issue of fiscal policy affecting interest rates is ever-evolving that depends on the structure of the economy and the strength of the financial markets. Hence, it is necessary to continuously validate this relationship between fiscal policy and interest rates. Towards this, the present paper tries to empirically examine and understand the transmission channels through which fiscal policy could affect short, medium, and long-term interest rates in India using Structural Vector Autoregression (SVAR) and Toda-Yamamoto causality approaches. Our results suggest that fiscal policy has a marginal impact on interest rates in the short run, while it has a larger positive impact on interest rates in the long run through the inflation route. In terms of the policy, in the long run, there is a need for containing the structural part of the fiscal deficit within the fiscal consolidation (Fiscal Responsibility and Budget Management Act) framework in India.

Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/13547860.2021.1913811 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Revisiting the Role of Fiscal Policy in Determining Interest Rates in India (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:rjapxx:v:26:y:2021:i:2:p:293-318

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/rjap20

DOI: 10.1080/13547860.2021.1913811

Access Statistics for this article

Journal of the Asia Pacific Economy is currently edited by Leong Liew

More articles in Journal of the Asia Pacific Economy from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().