Abstract

The objective of the study is to develop a relationship between interest rates and other macroeconomic variables using latest available data in Indian context so that a forecast of interest rate can be estimated. With the onset of economic reforms the interest rates India are deregulated and banks are allowed to determine market based interest rate. Market determined interest rates are likely to develop some relationship other economic variables and accordingly, cointegration among long term interest rate with other relevant variables are analyzed. While analyzing a number of variables the study found cointegrated relationship among interest rate, inflation and IIP growth rate and delineated an error correction model.

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