Investigating Long and Short Run Association between Sovereign Bond Yields and Interest Rate of BRICS Countries

We examine empirical association of dated sovereign security (15 year sovereign bond index) and interest rate of BRICS countries by using weekly data from 2001 to 2010. We used unit root test to check stationarity of data and it was found that one variable (bond) is stationary at level and other variable (interest) at 1st difference. In this case we used ARDL model, to see is there any short run and long run association between dated sovereign security and the interest rate of BRICS countries. We investigated the results by using Akaike info criterion (AIC) and Schwarz criterion (SIC). Out of AIC and SIC we took lowest value for optimum lag selection. Breusch-Godfrey Serial Correlation LM Test was used to check long run association of Govt. dated security and interest rate of BRICS countries, stability diagnostic test was used to check the stability of the data. We also calculated the speed of adjustment or Error Correction Term (ECT) and again with ECT (-1) we checked short run causality by using LM Test, stability diagnostic test and finally we used Wald test to check short run causality of bond lag1, lag2, interest lag1, interest lag2 and it was found that there is short run causality also between bond lag1, lag2 and interest lag1, lag2