Autori
Pistoresi, Barbara
D'Amato, Marcello

Titolo
Interest Rate Spreads between Italy and Germany: 1995-1997
Periodico
European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 1999 - Fascicolo: 8 - Pagina iniziale: 1 - Pagina finale: 23

In tliis paper we study thè determinants of thè long terni yield spread hetween Italian and Gerrnan government bonds using daily observations for a period 1 January 1995- 28 October 1997. We split total spread into two main factors: an exchange rate factor, that we approximate by a difl'erentia! on swap contracts (sanie maturity) and a default risk factor, that we consider as a residuai. Using cointegration analysis we test if thè interest rates par-ity condition holds in thè period considered and also study thè dynanlic adjustment of total spread and its components using impulse response analysis. The main result is that an uncovered parity condition cannot be rejected in thè sample only if thè re-lationship is augmented by thè German short terni interest rate. Impulse response analysis shows that this latter variable perma-nently affects thè default risk. The main conclusion is that thè reduction of thè total spread in thè period studied was due both to credibility gains and to favorable dynamics in thè German interest rate.



Testo completo: http://www.iue.it/ECO/WP-Texts/ECO99-8.pdf

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