Interest Rate Determination in India: The Role of Domestic and External Factors

Pami Dua and B.L. Pandit
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B.L. Pandit: Delhi School of Economics

No 92, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: This paper examines the determinants of interest rates in India in the post reform period in the context of a model that takes into account both domestic and external factors. The short- and long-run behaviour of interest rates (commercial paper rate, three-month Treasury bill rate, twelve-month Treasury bill rate) is studied. The empirical results are robust across interest rates and indicate the existence of a cointegrating relationship between real interest rates, real government expenditure, real money supply, foreign interest rates and the forward premium. The estimations also show that movements in interest rates are Granger caused by both domestic and external factors.

JEL-codes: E40 E43 E44 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2001-06
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