财政赤字与利率期限结构对企业投资的影响：基于印度高频数据的后疫情货币政策传导分析

Fiscal Deficit and Term Structure of Interest Rate Links on Corporate Investment:Analyzing the Post-Pandemic Monetary Policy Transmission Using Indian HighFrequency Databy Lekha ChakrabortyNationalInstitute of Public Finance and Policy and Levy Economics Institute and C. PrasanthNational Institute of Public Finance and Policy July 2025 Chakraborty is professor at NIPFP and Research Associate at the Levy Economics Institute; Prasanth isformer researcher at NIPFP. Thanks are due to Kavita Issar for the technical help. The Levy Economics Institute Working Paper Collection presents research in progress by Levy Institutescholars and conference participants. The purpose of the series is to disseminate ideas to and elicitcomments from academics and professionals. Levy Economics Institute of Bard College, founded in 1986, is anonprofit, nonpartisan,independently funded research organization devoted to public service. Through scholarship andeconomic research, it generates viable, effective public policy responses to important economicproblems that profoundly affect the quality of life in the United States and abroad. Levy Economics InstituteP.O. Box 5000Annandale-on-Hudson, NY 12504-5000http://www.levyinstitute.orgCopyright © Levy Economics Institute 2025 All rights reservedISSN 1547-366X ABSTRACT Usinghigh-frequency macrodata from a financially deregulated regime,thispaper examineswhether there is any evidence of financial crowding out in India. The macroeconomicchannel through which financial crowding out occurs is the link between the fiscal deficit andtheinterest rate determination.The results revealed that the fiscal deficit does notsignificantly determine interest rates in the post-pandemic monetary policy stance in India.The long-term interest rates were strongly influenced by the short-term interest rates,a factwhich reinforces thattheterm structure is operating in India. The results further revealed thatlong-term interest rates were also positively influenced by capital flows and inflationexpectations, while inversely impacted by the money supply. These inferences have policyimplications on the fiscal and monetary policy coordination in India, where it is crucial toanalyze theeffectofahigh-interest-rate regime on publiccorporate investment. Our resultsshowed that public infrastructure investment and rate of interest are significant determinantsof private corporate investment. Our resultscounterthe popular belief that deficits determineinterest rates in the context of emerging economiesand “crowd out” private corporateinvestment. KEY WORDS:fiscal deficit,interest rate determination,asymmetric vectorautoregressive model,financial crowding out JEL CODES:E62, C32, H6 INTRODUCTION In the context of emerging economies such as India,persistent fiscal imbalances are oftenseen as constraining the effectiveness of monetary policy in steering interest rates, owing tothe risk of financial crowding out.However, the high interest rates set by central banks canaffect public debt management, making debt servicing costlier. Therefore, the setting of bothmonetary and fiscal policies needs to be reassessed within a comprehensive framework ofsound and stablefiscal balances over the medium term for the economic growth recoveryprocess(Auerbach and Kotlikoff 1987; Auerbach2003; Blanchard 2019). This is especiallysignificantbecausefiscal policy has remained accommodative in Indiawith a focuson highcapital expenditure (CaPex)investment for economic growth recovery. Thereturn of fiscal dominanceis crucial,especially whenthe impact ofmonetary policy ongrowthis constrained, as itprimarily focuseson price stability as the single mandate ofcentral banks—as per the new monetary policy framework in India. High deficits and debtin India have created debates regarding fiscal risks from maintaining an accommodativefiscal stance. However, India has followed a fiscal glide path cautiously, linking highdeficits to capex formation in the economy. Credit rating agenciesare worried about highdeficits due to potential macroeconomic consequences, primarilytheimpact on interest ratemanagement. However, credit rating agencies are becoming increasingly confidentintheinsignificant link between deficits and interest rates, especially when theReserve Bank ofIndia (RBI)determines interest rates based on a rules-based,inflation-targeting framework.The timely fiscal deficit in India is articulated in a positive manner, by linking it to capexformation for the growth recovery process. This paper contributes to the empirical evidencefrom India, further substantiating that the timely fiscal deficit is not the culprit behind risinginterest rates, and it is crucial to keep fiscal policy accommodativeto thecapex and growthrecovery process. Using high-frequency data models, the paper analyzesthe second level of crowding out—financial crowding out—in the post-pandemic period.Against the backdrop ofaderegulatedfinancial regime in India,we analyzethe ma