Table 1.1A | Unit Root Tests: Interest Rates | (4th April 1997 to 27th Sep 2002) |
| TESTS | Null: y=0 | Null: y=0 | Null: y=0 | Null: y=0 | Null: y=0 | RESULTS | VARIABLE | in Eq. (3) | a=0 in | in Eq.(2) | a=0 in | Eq. (1) | (UNIT | | | TT | Eq. (3) | Tm | Eq.(2) | T | ROOT | | | | f1 | | f1 | | PRESENT) |
| ADF Test | | | | | | | Call | –2.7811 | 5.4754 | –2.8663 | 4.1488 | –0.1408 | Yes | PP – Test | | | | | | | Call | -6.8731 | | | | | No | ADF Test | | | | | | | TB 15-91 | –2.7826 | 4.8078 | –2.1482 | 2.3083 | –0.3675 | Yes | PP – Test | | | | | | | TB 15-91 | –5.0258 | | | | | No | ADF Test | | | | | | | GSec 1 | –-1.4013 | 1.7811 | –0.1033 | 0.7163 | –1.1964 | Yes | PP – Test | | | | | | | GSec 1 | –2.5803 | 3.4403 | –1.5296 | 1.5194 | –1.0830 | Yes | ADF Test | | | | | | | GSec 5 | –1.4301 | 1.3449 | 0.0149 | 2.1185 | –2.0284 | Yes | PP – Test | | | | | | | GSec 5 | –2.0582 | 2.2371 | –0.5675 | 1.6432 | –1.7982 | Yes | ADF Test | | | | | | | GSec 10 | –1.0165 | 1.9433 | 0.9373 | 2.4971 | –1.8928 | Yes | PP – Test | | | | | | | GSec 10 | –2.4080 | 3.1000 | –0.6252 | 1.1396 | –1.4511 | Yes | Critical Values | | | | | | | | | 10% | -3.13 | 5.34 | -2.57 | 3.78 | -1.62 | | 5% | -3.41 | 6.25 | -2.86 | 4.59 | -1.95 | | 1% | -3.96 | 8.27 | -3.43 | 6.43 | -2.58 | |
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Table 1.1B | Unit Root Tests: Variables in Multivariate Models | (4Th April 1997 to 27th Sep 2002) |
| TESTS | Null: y=0 | Null: y=0, | Null: y=0 | Null: y=0, | Null: y=0 | RESULTS | VARIABLE | in Eq. (3) | a=0 in | in Eq.(2) | a=0 in | Eq. (1) | (UNIT | | | TT | Eq. (3) | Tm | Eq. (3) | T | ROOT | | | | f1 | | f1 | | PRESENT) |
| ADF Test | | | | | | | FP-3months | –2.8823 | 4.4100 | –2.1868 | 2.3929 | –0.6641 | Yes | PP – Test | | | | | | | FP-3months | –4.1844 | | | | | No | ADF Test | | | | | | | FP-6months | –2.5820 | 3.6693 | –1.7450 | 1.5229 | –0.5247 | Yes | PP – Test | | | | | | | FP-6months | –3.4559 | 5.9741 | –3.1015 | 4.8300 | –1.2992 | Yes | ADF Test | | | | | | | Inflation | | | | | | | (year-on-year) | –1.6866 | 1.4224 | –1.6486 | 1.4480 | –0.9981 | Yes | PP – Test | | | | | | | Inflation | | | | | | | (year-on-year) | –1.7583 | 1.5472 | –1.7184 | 1.5590 | –1.0072 | Yes | ADF Test | | | | | | | LIBOR- | | | | | | | 3months | –1.6423 | 1.7114 | –0.7667 | 0.6723 | –1.0520 | Yes | PP – Test | | | | | | | LIBOR- | | | | | | | 3months | –0.4825 | 2.9814 | 1.2195 | 3.7826 | –1.9507 | Yes | ADF Test | | | | | | | LIBOR- | | | | | | | 6months | –1.5795 | 1.7062 | –0.6489 | 0.6280 | –1.0605 | Yes | PP – Test | | | | | | | LIBOR- | | | | | | | 6months | –0.3411 | 3.0851 | 1.3736 | 4.4630 | –2.0811 | Yes | ADF Test | | | | | | | Bank Rate | –3.2039 | 5.3812 | –1.5325 | 2.8072 | –2.0119 | Yes | PP – Test | | | | | | | Bank Rate | –4.5168 | | | | | No | ADF Test | | | | | | | Repo Rate | –2.7577 | 4.2585 | -2.9242 | 4.3125 | –0.3141 | Yes | PP – Test | | | | | | | Repo Rate | –3.3344 | 5.6361 | –3.3113 | 5.4851 | –0.7729 | Yes | ADF Test | | | | | | | Spread | –2.1485 | 2.8604 | –2.0077 | 3.0540 | –2.0818 | Yes | PP – Test | | | | | | | Spread | –3.4821 | 6.1687 | –2.2768 | 2.8958 | –1.6155 | Yes | ADF Test | | | | | | | Inflation | | | | | | | (week-to-week) | –6.7507 | | | | | No | PP – Test | | | | | | | Inflation | | | | | | | (week-to-week) | –15.538 | | | | | No | ADF Test | | | | | | | Credit | –1.2590 | 2.3677 | 1.5198 | 5.1700 | 3.2130 | Yes | PP – Test | | | | | | | Credit | –1.4108 | 3.9202 | 2.1503 | 19.0300 | | Yes | ADF Test | | | | | | | Liquidity | –2.3712 | 5.4351 | 2.0295 | 19.4790 | | Yes | PP – Test | | | | | | | Liquidity | –21.2670 | | | | | No | Critical Values | 10% | -3.13 | 5.34 | -2.57 | 3.78 | -1.62 | | 5% | -3.41 | 6.25 | -2.86 | 4.59 | -1.95 | | 1% | -3.96 | 8.27 | -3.43 | 6.43 | -2.58 | |
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Table 1.2 | KPSS Level Stationarity Test |
| | | l=0 | l=1 | l=2 | L=3 | l=4 | l=5 | l=6 | l=7 | l=8 | Conclusion | | | | | | | | | | | | (Unit Root | | | | | | | | | | | | Present) |
| Call | 3.0161 | 1.7590 | 1.2842 | 1.0434 | 0.8908 | 0.7831 | 0.6996 | 0.6345 | 0.5812 | Yes | TB 15-91 | 4.0575 | 2.1826 | 1.5559 | 1.2335 | 1.0320 | 0.8933 | 0.7912 | 0.7139 | 0.6538 | Yes | GSec 1 | 15.9503 | 8.1296 | 5.4985 | 4.1773 | 3.3822 | 2.8516 | 2.4730 | 2.1891 | 1.9680 | Yes | GSec 5 | 22.8168 | 11.5259 | 7.7465 | 5.8517 | 4.7119 | 3.9504 | 3.4058 | 2.9975 | 2.6801 | Yes | GSec 10 | 22.1516 | 11.2160 | 7.5453 | 5.7062 | 4.6007 | 3.8626 | 3.3348 | 2.9388 | 2.6306 | Yes | fp-3months | 4.8488 | 2.5593 | 1.7775 | 1.3868 | 1.1475 | 0.9868 | 0.8726 | 0.7880 | 0.7229 | Yes | fp-6months | 7.4406 | 3.8533 | 2.6377 | 2.0287 | 1.6588 | 1.4109 | 1.2343 | 1.1025 | 1.0002 | Yes | Inflation | | | | | | | | | | | (year-on-year) | 2.9759 | 1.5036 | 1.0113 | 0.7652 | 0.6178 | 0.5198 | 0.4500 | 0.3979 | 0.3574 | Yes | LIBOR-3months | 14.8076 | 7.4365 | 4.9756 | 3.7448 | 3.0064 | 2.5143 | 2.1630 | 1.8998 | 1.6952 | Yes | LIBOR-6months | 14.8824 | 7.4763 | 5.0032 | 3.7661 | 3.0240 | 2.5295 | 2.1765 | 1.9120 | 1.7064 | Yes | Bank Rate | 24.2326 | 12.3041 | 8.2889 | 6.2748 | 5.0648 | 4.2580 | 3.6820 | 3.2505 | 2.9153 | Yes | Repo | 3.7406 | 1.9419 | 1.3334 | 1.0289 | 0.8470 | 0.7260 | 0.6391 | 0.5737 | 0.5229 | Yes | Spread | 20.4757 | 10.4332 | 7.0479 | 5.3517 | 4.3317 | 3.6499 | 3.1626 | 2.7970 | 2.5121 | Yes | Inflation | | | | | | | | | | | (week-to-week) | 0.1138 | 0.1006 | 0.0915 | 0.0864 | 0.0812 | 0.0778 | 0.0770 | 0.0771 | 0.0781 | No | Credit | 27.8840 | 14.0262 | 9.3934 | 7.0747 | 5.6827 | 4.7546 | 4.0915 | 3.5943 | 3.2077 | Yes | Liquidity | 27.2143 | 14.1717 | 9.5184 | 7.1881 | 5.7725 | 4.8316 | 4.1563 | 3.6510 | 3.2567 | Yes |
| Note: l is the lag truncation parameter. | Asymptotic critical values for  : | Critical level: | | 0.10 | | 0.05 | 0.025 | 0.01 | | | Critival value (): | | 0.347 | | 0.463 | 0.574 | 0.739 | | |
Table 1.3 | Unit Root Tests (Summary) |
| | | ADF | PP | KPSS |
| Call | Yes | No | Yes | TB 15-91 | Yes | No | Yes | Gsec 1 | Yes | Yes | Yes | Gsec 5 | Yes | Yes | Yes | Gsec 10 | Yes | Yes | Yes | FP-3months | Yes | No | Yes | FP-6months | Yes | Yes | Yes | Inflation | | | | (year-on-year) | Yes | Yes | Yes | LIBOR-3months | Yes | Yes | Yes | LIBOR-6months | Yes | Yes | Yes | Bank Rate | Yes | No | Yes | Repo Rate | Yes | Yes | Yes | Spread | Yes | Yes | Yes | Inflation | | | | (week-to-week) | No | No | No | Credit | Yes | Yes | Yes | Liquidity | Yes | No | Yes |
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Note : p-value in parenthesis Table 3 | Tests for Cointegration: lmax Tests | H0 : |
H1:
| Statistics | Critical values | RESULTS | No. of | 99% | 95% | | C. V. | MODEL A : i(Call) = f (p1, Bank Rate, Spread, Liquidity, i*1, fp1) | r = 0 | r = 1 | 79.32 | 45.10 | 39.37 | Reject Null Hypothesis | 1 | r ≤1 | r = 2 | 38.68 | 38.77 | 33.46 | Do not Reject Null Hypothesis | | MODEL B : i(TB 15-91) = f (p2, Bank Rate, Spread, Liquidity, i*1, fp1) | r = 0 | r = 1 | 59.12 | 51.57 | 45.28 | Reject Null Hypothesis | 1 | r ≤1 | r = 2 | 37.41 | 45.10 | 39.37 | Do not Reject Null Hypothesis | | MODEL C : i(GSec 1) = f (p2, Bank Rate, Spread, Liquidity, i*2, fp2) | r = 0 | r = 1 | 52.75 | 51.57 | 45.28 | Reject Null Hypothesis | 1 | r ≤1 | r = 2 | 40.13 | 45.10 | 39.37 | Do not Reject Null Hypothesis | | MODEL D : i(GSec 5) = f (p2, Bank Rate, Spread, credit, i*2, fp2) | r = 0 | r = 1 | 55.29 | 51.57 | 45.28 | Reject Null Hypothesis | 1 | r ≤1 | r = 2 | 36.23 | 45.10 | 39.37 | Do not Reject Null Hypothesis | | MODEL E : i(GSec 10) = f (p2, Bank Rate, Spread, credit, i*2, fp2) | r = 0 | r = 1 | 63.77 | 51.57 | 45.28 | Reject Null Hypothesis | 1 | r ≤1 | r = 2 | 40.68 | 45.10 | 39.37 | Do not Reject Null Hypothesis | | Note: r is the order of cointegration. C. V. denotes the cointegrating vector. p1 ,p2 denote inflation (week-to- week) and inflation (year-on-year), respectively. i*1 and i*2 denote LIBOR-3 months and LIBOR-6 months respectively fp1 And fp2 denote three- and six-months Forward Premium, respectively. Critical values are from Osterwald M. and Lenum (1992). |
Table 4 | Granger Causality Tests | Null Hypothesis | Number of | X2 | Conclusion | | | Lags | (calculated) | | MODEL A i(Call):= f (p1†, Bank Rate, Spread, Liquidity, i*1, fp1) | i (Call) is not granger caused by Bank Rate | 3 | 70.99 (.00) | Reject null hypothesis* | i (Call) is not granger caused by Spread | 3 | 52.42 (.00) | Reject null hypothesis* | i (Call) is not granger caused by Liquidity | 3 | 43.66 (.00) | Reject null hypothesis* | i (Call) is not granger caused by i*1 | 3 | 44.11 (.00) | Reject null hypothesis* | i (Call) is not granger caused by fp1 | 3 | 61.51 (.00) | Reject null hypothesis* | MODEL B : i(TB 15-91) = f (p2, Bank Rate, Spread, Liquidity, i*1, fp1) | i (TB 15-91) is not granger caused by p2 | 2 | 54.94 (.00) | Reject null hypothesis* | i (TB 15-91) is not granger caused by Bank Rate | 2 | 114.29 (.00) | Reject null hypothesis* | i (TB 15-91) is not granger caused by Spread | 2 | 45.75 (.00) | Reject null hypothesis* | i (TB 15-91) is not granger caused by Liquidity | 2 | 50.50 (.00) | Reject null hypothesis* | i (TB 15-91) is not granger caused by i*1 | 2 | 45.23 (.00) | Reject null hypothesis* | i (TB 15-91) is not granger caused by fp1 | 2 | 115.37 (.00) | Reject null hypothesis* | MODEL C : i(GSec 1) = f (p2, Bank Rate, Spread, Liquidity, i*2, fp2) | i (GSec 1) is not granger caused by p2 | 3 | 43.36 (.00) | Reject null hypothesis* | i (GSec 1) is not granger caused by Bank Rate | 3 | 140.92 (.00) | Reject null hypothesis* | i (GSec 1) is not granger caused by Spread | 3 | 39.47 (.00) | Reject null hypothesis* | i (GSec 1) is not granger caused by Liquidity | 3 | 34.28 (.00) | Reject null hypothesis* | i (GSec 1) is not granger caused by i*2 | 3 | 27.75 (.00) | Reject null hypothesis* | i (GSec 1) is not granger caused by fp2 | 3 | 104.18 (.00) | Reject null hypothesis* | MODEL D : i(GSec 5) = f (p2, Bank Rate, Spread, credit, i*2, fp2) | i (GSec 5) is not granger caused by p2 | 3 | 08.22 (.08) | Reject null hypothesis** | i (GSec 5) is not granger caused by Bank Rate | 3 | 87.95 (.00) | Reject null hypothesis* | i (GSec 5) s not granger caused by Spread | 3 | 19.99 (.00) | Reject null hypothesis* | i (GSec 5) is not granger caused by Credit | 3 | 08.77 (.07) | Reject null hypothesis** | i (Gsec 5) is not granger caused by i*2 | 3 | 11.52 (.02) | Reject null hypothesis* | i (GSec 5) is not granger caused by fp2 | 3 | 37.74 (.00) | Reject null hypothesis* | MODEL E : i(GSec 10) = f (p2, Bank Rate, Spread, credit, i*2, fp2) | i (GSec 10) is not granger caused by p2 | 3 | 10.31 (.04) | Reject null hypothesis* | i (GSec 10) is not granger caused by Bank Rate | 3 | 61.04 (.00) | Reject null hypothesis* | i (GSec 10) is not granger caused by Spread | 3 | 15.26 (.00) | Reject null hypothesis* | i (GSec 10) is not granger caused by Credit | 3 | 10.25 (.00) | Reject null hypothesis* | i (GSec 10) is not granger caused by i*2 | 3 | 05.98 (.20) | Reject null hypothesis*** | i (GSec 10) is not granger caused by fp2 | 3 | 26.31 (.00) | Reject null hypothesis* | Note: p-value in parenthesis. *, ** and *** denote significance at 5%, 10% and 20% levels, respectively.
† Week-to-week Inflation has been used as an exogenous variable. |
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