Risk premium as an economic policy objective: The Spanish case

Abstract

This paper tries to analyse to what extent the public debt yield spread of German and Spanish sovereign bonds is related with the Spanish economic fundamentals. An analysis of different Spanish economic variables (public debt/GDP, private debt/GDP, inflation rate, unemployment rate and borrowing capacity) from 1990 to 2012 is done previous to a cointegration analysis. Results do not allow us to confirm strongly the long term relationship between public debt yield spread and the referred economic variables as a whole null hypothesis. In this sense, there is not enough evidence to show that premium risk evolution is determined by Spanish economic fundamentals progression in the long term, and thus a speculative component might be considered as a determinant. Therefore, the referred spread role as an economic policy objective should be relativized since it cannot be proved that tackling the analysed economic variables could reduce the spread significantly.

The role of confidence in the evolution of the Spanish economy: empirical evidence from an ARDL model

“…Taking into account that only I(0) and I(1) variables can be included in an ARDL model reflecting the relationships between confidence and some of the fundamentals of the Spanish economy, unit root tests are performed. In this sense Perez et al (2013) provide evidence of the existence of a unit root for variables such as public debt/GDP, private debt/GDP, inflation rate, unemployment rate, borrowing capacity/GDP and Spain vs German yield debt spread. In this paper we complete the analysis developing unit root tests to check the order of integration of ESI_Sp and the VIX.…”