Have Real Interest Rates Really Fallen that Much in Spain?

24 Pages Posted: 28 Feb 2007

Abstract

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.

Keywords: real interest rates, intertemporal marginal rate of substitution

JEL Classification: E43, G12

Suggested Citation

Blanco, Roberto and Restoy, Fernando, Have Real Interest Rates Really Fallen that Much in Spain?. Banco de España Research Paper No. WP-0704, Available at SSRN: https://ssrn.com/abstract=965730 or http://dx.doi.org/10.2139/ssrn.965730

Roberto Blanco (Contact Author)

Banco de España ( email )

Madrid 28014
Spain

Fernando Restoy

Banco de España ( email )

Madrid 28014
Spain
(34 91) 338 5119 (Phone)
(34 91) 338 5678 (Fax)

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