Have real interest rates really fallen that much in Spain?
This paper analyses the behaviour of real interest rates in the Spanish economy over the last 15 years. Since inflation-indexed-bonds are not available, changes in implicit real interest rates are estimated using several approaches suggested by macroeconomic and financial theory. In particular, we employ equilibrium conditions of a representative agent under several specifications of preferences. Moreover, we exploit no-arbitrage conditions in securities markets. The evidence we report indicates that inflation uncertainty could account for a notable part of the observed decrease in nominal rates. Consequently, the actual real cost of financing might have decreased significantly less than what the course of ex-post real rates would suggest.
|Date of creation:||Feb 2007|
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"Asset Prices Under Habit Formation And Catching Up With The Joneses,"
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1-90, Wharton School - Weiss Center for International Financial Research.
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"Implications of Security Market Data for Models of Dynamic Economies,"
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University of Chicago Press, vol. 99(2), pages 225-262, April.
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- King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
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Blackwell Publishing, vol. 26(1), pages 1-8, February.
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- Flood, Robert P. & Rose, Andrew K., 2005. "Estimating the expected marginal rate of substitution: A systematic exploitation of idiosyncratic risk," Journal of Monetary Economics, Elsevier, vol. 52(5), pages 951-969, July.
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