Determinants of the Government Bond Yield in Spain: A Loanable Funds Model

Abstract

This paper applies demand and supply analysis to examine the government bond yield in Spain. The sample ranges from 1999.Q1 to 2014.Q2. The EGARCH model is employed in empirical work. The Spanish government bond yield is positively associated with the government debt/GDP ratio, the short-term Treasury bill rate, the expected inflation rate, the U.S. 10 year government bond yield and a dummy variable representing the debt crisis and negatively affected by the GDP growth rate and the expected nominal effective exchange rate.

Keywords

• government debt
• long-term interest rate
• expected inflation
• world interest rate
• exchange rate
• loanable funds model