The Italian nominal interest rate conundrum: a problem of growth or public finance?

Giovanni Carnazza () and Nicola Caravaggio ()
Additional contact information
Giovanni Carnazza: Università di Roma Tre

No 265, Departmental Working Papers of Economics - University 'Roma Tre' from Department of Economics - University Roma Tre

Abstract: In the economic literature, there has been a large heterogeneity of results in relation to the impact of fiscal variables on interest rates. Focusing on the Italian economy and considering the nature of our interest rate determinants (public finance variables and nominal GDP growth), we decided to undertake a cointegration analysis relying on the Autoregressive Distributed Lag (ARDL) bound test approach, a particular suitable procedure within this peculiar framework, able to disentangle short-run and long-run dynamics. Our results are quite controversial, shedding new light on the role of gross debt and primary balance as a share of GDP in relation to the long-term Italian nominal interest rate. In this context, the ECB has probably played a crucial role, especially in the most severe phases of the Sovereign debt crisis. The European fiscal framework then shows further critical issues in relation to the new role that fiscal variables play within our econometric analysis.

Keywords: Italian economy; Sovereign bond yield; European Monetary Union; Public finance (search for similar items in EconPapers)
JEL-codes: C13 C22 E43 E58 E62 G12 (search for similar items in EconPapers)
Pages: 34
Date: 2021-11
New Economics Papers: this item is included in nep-ban, nep-eec, nep-fdg and nep-mac
References: Add references at CitEc
Citations:

Published

Downloads: (external link)
https://economia.uniroma3.it/ricerca/pubblicazioni/working-papers/ (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rtr:wpaper:0265

Access Statistics for this paper

More papers in Departmental Working Papers of Economics - University 'Roma Tre' from Department of Economics - University Roma Tre Via Silvio d'Amico 77, - 00145 Rome Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Telephone for information ().