HAVE REAL INTEREST RATES REALLY FALLEN THAT MUCH IN SPAIN?

Roberto Blanco and Fernando Restoy
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Fernando Restoy: CNMV

Revista de Economia Aplicada, 2011, vol. 19, issue 1, 153-170

Abstract: This paper analyses the behaviour of real interest rates in the Spanish economy between 1990 and 2005. 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.

Keywords: real interest rates; intertemporal marginal rate of substitution (search for similar items in EconPapers)
JEL-codes: E43 G12 (search for similar items in EconPapers)
Date: 2011
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Working Paper: Have real interest rates really fallen that much in Spain? (2007)
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