Have real interest rates really fallen that much in Spain?
- Blanco Escolar, Roberto
- Restoy Lozano, Fernando
ISSN: 0213-2710
Year of publication: 2007
Issue: 4
Pages: 9-25
Type: Working paper
More publications in: Documentos de trabajo - Banco de España
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.