IDEAS home Printed from https://ideas.repec.org/a/ove/journl/aid10002.html
   My bibliography  Save this article

Risk premium as an economic policy objective: The Spanish case

Author

Listed:
  • Indalecio Perez
  • Pablo Castellanos
  • Jose Manuel Sanchez-Santos

Abstract

This paper tries to analyse to what extent the Spanish public debt risk premium is related with the Spanish economic fundamentals. A cointegration analysis of different economic variables (public or private debt/GDP, inflation, unemployment and borrowing capacity) from 1990 to 2012 does not allow us to confirm strongly the long term relationship between the risk premium and the referred variables. There is not enough evidence to show that premium risk is determined by Spanish economic fundamentals in the long term. 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.

Suggested Citation

  • Indalecio Perez & Pablo Castellanos & Jose Manuel Sanchez-Santos, 2013. "Risk premium as an economic policy objective: The Spanish case," Economics and Business Letters, Oviedo University Press, vol. 2(3), pages 94-104.
    • Handle: RePEc:ove:journl:aid:10002
    as

    Download full text from publisher

    File URL: https://reunido.uniovi.es/index.php/EBL/article/view/10002
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Perron, Pierre & Vogelsang, Timothy J., "undated". "Level Shifts and Purchasing Power Parity," Instructional Stata datasets for econometrics levshift, Boston College Department of Economics.
    2. Sebastián Nieto-Parra, 2009. "Who Saw Sovereign Debt Crises Coming?," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2009), pages 125-169, August.
    3. Perron, Pierre & Vogelsang, Timothy J, 1992. "Nonstationarity and Level Shifts with an Application to Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 301-320, July.
    4. Fontana, Alessandro & Scheicher, Martin, 2016. "An analysis of euro area sovereign CDS and their relation with government bonds," Journal of Banking & Finance, Elsevier, vol. 62(C), pages 126-140.
    5. Ben S. Bernanke, 1990. "On the predictive power of interest rates and interest rate spreads," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 51-68.
    6. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    7. Clemente, Jesus & Montanes, Antonio & Reyes, Marcelo, 1998. "Testing for a unit root in variables with a double change in the mean," Economics Letters, Elsevier, vol. 59(2), pages 175-182, May.
    8. Alois Geyer & Stephan Kossmeier & Stefan Pichler, 2004. "Measuring Systematic Risk in EMU Government Yield Spreads," Review of Finance, European Finance Association, vol. 8(2), pages 171-197.
    9. Mark J. Holmes, 2006. "How Sustainable Are Oecd Current Account Balances In The Long Run?," Manchester School, University of Manchester, vol. 74(5), pages 626-643, September.
    10. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    11. Christian Aßmann & Jens Boysen-Hogrefe, 2012. "Determinants of government bond spreads in the euro area: in good times as in bad," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 39(3), pages 341-356, August.
    12. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
    13. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    14. Alois Geyer & Stephan Kossmeier & Stefan Pichler, 2004. "Measuring Systematic Risk in EMU Government Yield Spreads," Review of Finance, Springer, vol. 8(2), pages 171-197.
    15. Gregory, Allan W & Hansen, Bruce E, 1996. "Tests for Cointegration in Models with Regime and Trend Shifts," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(3), pages 555-560, August.
    16. Nieto-Parra, Sebastián, 2009. "Who saw sovereign debt crises coming?," LSE Research Online Documents on Economics 123066, London School of Economics and Political Science, LSE Library.
    17. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-228, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pablo Castellanos García & Indalecio Pérez Díaz del Río & Jose Manuel Sanchez-Santos, 2014. "The role of confidence in the evolution of the Spanish economy: empirical evidence from an ARDL model," European Journal of Government and Economics, Europa Grande, vol. 3(2), pages 148-161, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marcos José Dal Bianco, 2008. "Argentinean real exchange rate 1900-2006, test purchasing power parity theory," Estudios de Economia, University of Chile, Department of Economics, vol. 35(1 Year 20), pages 33-64, June.
    2. Turgut Türsoy, 2017. "Causality between Stock Prices and Exchange Rates in Turkey: Empirical Evidence from the ARDL Bounds Test and a Combined Cointegration Approach," IJFS, MDPI, vol. 5(1), pages 1-10, March.
    3. Brittle, Shane, 2009. "Ricardian Equivalence and the Efficacy of Fiscal Policy in Australia," Economics Working Papers wp09-10, School of Economics, University of Wollongong, NSW, Australia.
    4. Adewuyi, Adeolu O. & Ogebe, Joseph O., 2019. "The validity of uncovered interest parity: Evidence from african members and non-member of the organisation of petroleum exporting countries (OPEC)," Economic Modelling, Elsevier, vol. 82(C), pages 229-249.
    5. Vinish Kathuria, 2019. "Growth and Investment: Testing for the Relationship for South Asian Countries," Millennial Asia, , vol. 10(3), pages 337-371, December.
    6. Önder Hanedar & Elmas Yaldýz & Özgül Bilici & Onur Akkaya, 2006. "Long Run Profit Maximization in Turkish Manufacturing Sector," Papers of the Annual IUE-SUNY Cortland Conference in Economics, in: Oguz Esen & Ayla Ogus (ed.), Proceedings of the Conference on Human and Economic Resources, pages 239-248, Izmir University of Economics.
    7. Lusine Lusinyan & John Thornton, 2011. "Unit roots, structural breaks and cointegration in the UK public finances, 1750-2004," Applied Economics, Taylor & Francis Journals, vol. 43(20), pages 2583-2592.
    8. Vassilis Monastiriotis & Cigdem Borke Tunali, 2020. "The Sustainability of External Imbalances in the European Periphery," Open Economies Review, Springer, vol. 31(2), pages 273-294, April.
    9. L.J. Perry & Patrick J. Wilson, 2000. "The Accord and strikes: an International perspective," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 4(4), pages 232-247, December.
    10. Vicente Esteve, 2004. "Política fiscal y productividad del trabajo en la economía española: un análisis de series temporales," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 19(1), pages 3-29, June.
    11. Mallick, Lingaraj & Behera, Smruti Ranjan & Murthy, R.V. Ramana, 2021. "Does the twin deficit hypothesis exist in India? Empirical evidence from an asymmetric non-linear cointegration approach," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).
    12. Salim, Ruhul & Yao, Yao & Chen, George & Zhang, Lin, 2017. "Can foreign direct investment harness energy consumption in China? A time series investigation," Energy Economics, Elsevier, vol. 66(C), pages 43-53.
    13. Jose Fernandez-Serrano & Simon Sosvilla-Rivero, 2003. "Modelling the linkages between US and Latin American stock markets," Applied Economics, Taylor & Francis Journals, vol. 35(12), pages 1423-1434.
    14. Compagnucci, Fabiano & Gentili, Andrea & Valentini, Enzo & Gallegati, Mauro, 2021. "Have jobs and wages stopped rising? Productivity and structural change in advanced countries," Structural Change and Economic Dynamics, Elsevier, vol. 56(C), pages 412-430.
    15. Salah Nusair, 2008. "Testing for the Fisher hypothesis under regime shifts: an application to Asian countries," International Economic Journal, Taylor & Francis Journals, vol. 22(2), pages 273-284.
    16. Kasman, Adnan & Ayhan, Duygu, 2008. "Foreign exchange reserves and exchange rates in Turkey: Structural breaks, unit roots and cointegration," Economic Modelling, Elsevier, vol. 25(1), pages 83-92, January.
    17. Damianov, Damian S & Escobari, Diego, 2015. "Long-Run Equilibrium Shift and Short-Run Dynamics of U.S. Home Price Tiers during the Housing Bubble," MPRA Paper 65765, University Library of Munich, Germany.
    18. Aggarwal, Raj & Montanes, Antonio & Ponz, Monserrat, 2000. "Evidence of long-run purchasing power parity: analysis of real asian exchange rates in terms of the Japanese yen," Japan and the World Economy, Elsevier, vol. 12(4), pages 351-361, December.
    19. Shruti SHASTRI & A.K. GIRI & Geetilaxmi MOHAPATRA, 2017. "An empirical assessment of fiscal sustainability for selected South Asian economies," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(610), S), pages 163-178, Spring.
    20. Baum, Christopher F. & Barkoulas, John, 2006. "Dynamics of Intra-EMS Interest Rate Linkages," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 469-482, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ove:journl:aid:10002. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Francisco J. Delgado (email available below). General contact details of provider: https://edirc.repec.org/data/deovies.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.