Under the guidance of

Prof. Kakali Kanjilal

Nachiappan Pl
Ramya Yarlagadda
Srikanth Kumar Konduri
Nikhil Gupta
Murali Podile
FIS Project

10FN-063
10FN-089
10FN-109
10FN-121
10IB-041
Indian Perspective

1. The Approach

2. CRISIL Study

3. Our Empirical Observations

4. Conclusion

5. Limitations

Goal is to explore any possible bilateral relationship between the

pattern of yield curve and macro economy variables.

Software used : MS Excel

Pivot Table
Analysis Tools (Regression) add-in

Period of study
April 2006 to November 2008 for previous study
FY 2005 to Q1 FY 2011 for our study

Periodicity of data
Monthly basis for the study conducted by CRISIL
Quarterly basis for our study based on RBI data

Objective:
Analysis over the extent to which monetary
policy changes in India influence the behavior
of the yield curve
Focused mainly 1-year and 10-year Govt.
securities

Yield Curve
indicators
Level: Average of YTM of the
most liquid LT, MT & ST G-secs

Macro Economy
indicators
GDP growth (Q-o-Q)
IIP growth (Q-o-Q)
Inflation : WPI (Y-o-Y)

Slope : Difference in YTM levels of

LT & ST G-secs
LT : >5 years
MT : 1-5 years
ST : 91 DTB

Forex rate change

RBI proxy: Call Money Rate

12
10
8
6
4
2
0
-2
-4
-6
-8
-2

-4
10Q4

10Q2

-4

9Q4

9Q2

Dslope

8Q4

Dlevel

8Q2

7Q4

Call money

7Q2

6Q4

10Q4

10Q2

9Q4

9Q2

8Q4

8Q2

7Q4

7Q2

6Q2

6Q2
6Q4

10Q4

10Q2

9Q4

9Q2

8Q4

8Q2

7Q4

7Q2

6Q4

6Q2

5Q4

30
25
20
15
10
5
0
-5
-10
-15
-20
-25

5Q4

10Q4

10Q2

9Q4

9Q2

8Q4

8Q2

7Q4

7Q2

6Q4

6Q2

5Q4

-2

5Q4

10

IIP

Dlevel

Dslope

12

10
8

Forex
6
WPI

Dlevel
4
Dlevel

Dslope
2
Dslope

CMR (t-1)

CMR (t)

IIP (t)

Forex (t)

WPI (t)

Dlevel (t)

Dslope (t)

Adjusted RSquare
Coefficient
t-Stat
p-Value
Adjusted RSquare
Coefficient

IIP (t-1)
Forex (t-1)
WPI (t-1)
Dlevel (t-1)
Dslope (t-1)
Adjusted
Adjusted RAdjusted RAdjusted RAdjusted R0.386253023
0.386253
0.386253
0.386253023
0.386253
0.386253023
R-Square
Square
Square
Square
Square
0.445827451 Coefficient -0.045815 Coefficient -0.260202 Coefficient -0.073868277 Coefficient
-0.28018 Coefficient
0.207672543
2.194254826 t-Stat
-1.762554 t-Stat
-2.983108 t-Stat
-0.686534489 t-Stat
-0.484215 t-Stat
0.535972608
0.044379325 p-Value
0.0983333 p-Value
0.0092866 p-Value
0.502851748 p-Value
0.6352273 p-Value
0.599835834
Adjusted
Adjusted RAdjusted RAdjusted RAdjusted R0.054692629
0.0546926
0.0546926
0.054692629
0.0546926
0.054692629
R-Square
Square
Square
Square
Square
0.8869053 Coefficient

-0.322634 Coefficient

0.1763652 Coefficient

-1.767566911 Coefficient

-4.965248 Coefficient

-4.082237628

t-Stat
p-Value
Adjusted RSquare

0.514806632 t-Stat
0.614190226 p-Value
Adjusted
0.446034736
R-Square

-1.463849 t-Stat
0.2384615 t-Stat
0.1638758 p-Value
0.8147502 p-Value
Adjusted RAdjusted R0.4460347
0.4460347
Square
Square

-1.93743383 t-Stat
-1.012018 t-Stat
-1.242534402
0.071755656 p-Value
0.3275765 p-Value
0.233114079
Adjusted RAdjusted R0.446034736
0.4460347
0.446034736
Square
Square

Coefficient

0.390744416 Coefficient

0.0296106 Coefficient

0.593536205 Coefficient

t-Stat
p-Value
Adjusted RSquare

0.982062732 t-Stat
0.341644635 p-Value
Adjusted
0.147079717
R-Square

0.5817175 t-Stat
1.1417621 t-Stat
0.5693969 p-Value
0.2714526 p-Value
Adjusted RAdjusted R0.1470797
0.1470797
Square
Square

Coefficient

0.005856259 Coefficient

0.0072808 Coefficient

0.1950252 Coefficient

-0.224921 Coefficient

-2.056106 Coefficient

2.816941312 t-Stat
-1.814565 t-Stat
0.01300723 p-Value
0.0896386 p-Value
Adjusted RAdjusted R0.147079717
0.1470797
Square
Square
0.45110247 Coefficient

-0.631155 Coefficient

1.236268311
1.629305204
0.124063817
0.147079717
-0.77045616

t-Stat
p-Value
Adjusted RSquare

0.014360005 t-Stat
0.988732026 p-Value
Adjusted
-0.012767766
R-Square

0.1395504 t-Stat
-1.284705 t-Stat
2.088784641 t-Stat
-0.543439 t-Stat
-0.990662027
0.8908717 p-Value
0.2183812 p-Value
0.054185739 p-Value
0.5948126 p-Value
0.33756306
Adjusted RAdjusted RAdjusted RAdjusted R-0.012768
-0.012768
-0.012767766
-0.012768
-0.012767766
Square
Square
Square
Square

Coefficient

-0.106017918 Coefficient

-0.002072 Coefficient

t-Stat
p-Value
Adjusted RSquare

-1.178434097 t-Stat
0.25698062 p-Value
Adjusted
0.350007453
R-Square

-0.179991 t-Stat
-0.680317 t-Stat
-1.265984215 t-Stat
0.804559 t-Stat
0.8595687 p-Value
0.5066695 p-Value
0.224828182 p-Value
0.4336417 p-Value
Adjusted RAdjusted RAdjusted RAdjusted R0.3500075
0.3500075
0.350007453
0.3500075
Square
Square
Square
Square

Coefficient

0.125593803 Coefficient

t-Stat
p-Value

1.109795466 t-Stat
0.284562549 p-Value

-0.00571 Coefficient
-0.394409 t-Stat
0.6988301 p-Value

-0.026275 Coefficient

-0.060313999 Coefficient

0.2061348 Coefficient

0.040673571
0.237072723
0.815807683
0.350007453

0.1351523 Coefficient

-0.055251544 Coefficient

-0.544108 Coefficient

-0.540838926

2.7818679 t-Stat
0.013961 p-Value

-0.921941339 t-Stat
0.371150806 p-Value

-1.688264 t-Stat
0.1120358 p-Value

-2.506028085
0.02421588

CMR (t-1)

CMR (t-1)
p 0.04,
Coefficient 0.44,
t 2.19

IIP (t-1)

IIP (t-1)
Forex (t-1)
WPI (t-1)
p 0.098,
p 0.01,
Coefficient -0.04, Coefficient -0.26,
t -1.76
t -2.98
p 0.16,
Coefficient -0.32,
t -1.5

p 0.07,
Coefficient -1.77,
t -1.94

p 0.23,
Coefficient -4.08,
t -1.2

p 0.22,
p 0.05,
Coefficient -0.22, Coefficient -0.45,
t -1.28
t 2.09

p 0.26,
Dlevel (t-1) Coefficient -0.11,
t -1.18
Dslope (t-1)

Dslope (t-1)

p 0.08,
Coefficient -2.06,
t -1.81

Forex (t-1)

WPI (t-1)

Dlevel (t-1)

p 0.22,
Coefficient -0.06,
t -1.26
p 0.01,
Coefficient 0.13,
t 2.7

p 0.11,
p 0.02,
Coefficient -0.54, Coefficient -0.54,
t -1.69
t -2.5

Change in the level could be considered as a parameter

rather than level

A proper lag to be considered for reflection of inflation

might be 3-4 months

Volume of transactions for each G-sec is not considered to

determine most liquid ones
Period under consideration could be expanded till 2000,
Macro economy factors under consideration could be
revisited
The time series data could be checked and corrected to
maintain stationary condition