FORECASTING INTEREST RATES USING HOLT’S MODEL FOR INDIA 10-YEAR GOVERNMENT BOND YIELD
Abstract
Holt's two-parameter model, or linear exponential time series smoothing, is a prominent trend-predicting smoothing model. We use this model to forecast interest rates for long term Government Bond Yields (10 year). The findings of this research indicate that investors are contemplating a rise in prices in anticipation of persistent inflation and burgeoning government borrowing, two major outcomes that could prompt the central bank of India to take a decision to increase substantially policy rates more quickly than initially anticipated. This is causing India's bond yields to rise very quickly ever since the global financial crisis of 2008. We also observe that in spite of generally dovish central bank pronouncements up to the unplanned hike in policy rates in early May, yields on the benchmark 10-year bond have increased by 107 basis points so far in this calendar cycle.
Keyword : Yield, Government Bonds, Inflation, Holt’s Method, Forecasting
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