Non-Linear Relationship between Bond Prices and Electricity Prices in India: An Analysis using Threshold Regression Approach

Abstract

This research article scrutinises the connotation among bond prices and electricity prices (EP) across different threshold regions in India using threshold regression analysis. We resolve to investigate whether or not there exists a non-linear association between bond prices and EP and if this relationship differs across different threshold regions. The data covers a period of five years from 2018 to 2022, and the analysis includes three different threshold regions based on different threshold bond prices. The results show that there exists significant non-linear association between bond prices and EP, and this relationship differs across the three threshold regions. We surmise presence of an optimality between bond prices (interest rates) and EP, beyond which the EP increase. We conclude that as interest rates increase, the cost of financing for electricity companies also increases, which may lead to higher EP. However, there may be a certain threshold beyond which the cost of financing becomes too high, leading to a decrease in investment and ultimately a decrease in electricity supply, which in turn could lead to higher EP.

DOI: https://doi.org/10.21863/jcar/2024.13.3.010

Keywords: Bond Prices, Electricity Prices, India, Non-Linear Relationship, Threshold Regression

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