Juan Ayuso

Are capital buffers pro-cyclical?: Evidence from Spanish panel data

In this paper, we analyse the relationship between the Spanish business cycle and the capital buffers held by Spanish commercial and savings banks. We build an incomplete panel of Spanish institutions from 1986 to 2000 –thus covering a complete business cycle– and estimate an equation for the behaviour of capital buffers that includes an indicator of the business cycle. Our findings are fairly robust and quite unequivocal. After controlling for other potential determinants of the surplus capital we find a robustly significant negative relationship between the business cycle and capital buffers. From a quantitative standpoint, an increase of 1 percentage point in GDP growth might reduce capital buffers by 17%. This relationship is, moreover, asymmetric, being closer during upturns. Accordingly, there is a case for taking into account the so-called pro-cyclicality problem in the final design of Basel II. Pillar 2 seems to be the right place to address the issue.

Has financial market integration increased during the nineties

This paper analyses whether there has been an increase in the degree of financial market integration during the nineties. To do this, we focus on stock markets and compute, first, a number of standard measures of co-movements that sometimes are interpreted as measures of financial integration. In the second part of the paper we compute two alternative measures of market integration based on a refinement of the approach suggested by Chen and Knez (1995).

Volatility transmission along the money market yield curve

Volatility Transmission along the Money Market Yield Curve. - The authors model the volatility of money market interest rates — and the transmission of volatility - along the money market yield curve in the UK, Germany, France and Spain. They find a significant volatility transmission from overnight to longer-term money market rates in France, Spain and the U.K. They also find that the countries with lower (higher) reserve requirements tend to have higher (lower) interbank interest rate volatility. However, reserve requirements generate a perverse seasonal effect at the end of the maintenance period.ZusammenfassungDie Übertragung von Volatilität entlang der Ertrags-kurve des Geldmarktes. - Die Verfasser modellieren die Volatilität der Zinssätze auf dem Geldmarkt - und die Übertragung der Volatilität - entlang der Ertragskurve des Geldmarktes in Deutschland, Frankreich und Spanien und im Vereinigten Königreich. Sie ermitteln eine signifikante Volatilitäts-Übertragung der Geldmarktsätze von Tagesgeld bis zu längerfristigen Anlagen in Frankreich, Spanien und dem Vereinigten Königreich. Sie stellen ebenfalls fest, daß die Länder mit niedrigeren (höheren) Mindestreserveanforderungen zu einer höheren (niedrigeren) Volatilität der Zinssätze zwischen Banken tendieren. Allerdings verursachen die Mindestreserven am Ende der Festlegungsperiode einen perversen saisonalen Effekt.

Why Did the Banks Overbid? An Empirical Model of the Fixed Rate Tenders of the European Central Bank

This paper tests two hypotheses for the overbidding behavior of the banks in the fixed rate tenders conducted by the European Central Bank (ECB) from January 1999 until June 2000. One hypothesis attributes the overbidding to the expectations of a future tightening of monetary policy, while the other attributes it to the liquidity allotment decisions of the ECB. The model is estimated with individual bidding data of the Spanish banks, and also with aggregate bidding data of all Spanish banks and all banks in the euro area. The empirical results provide support for the second hypothesis.

House Prices and Rents in Spain: Does the Discount Factor Matter?

We estimate alternative price to rent ratios in the Spanish housing market by considering different stochastic discount factors in present value models similar to those used in the financial literature but where the higher rigidity that characterises this market is taken into account. We identify three robust across model regularities: i) the increase in the price to rent ratio since the late nineties helped at first to restore equilibrium, ii) further increases in house prices raised the ratio between 24% and 32% above equilibrium by 2004, although iii) at that time the ratio was only around 2% above its short term adjustment path towards a (new) long run equilibrium.

The effects of the introduction of tax incentives on retirement savings

This paper uses a Spanish panel of tax returns and another on household expenditure during the period 1985-1991 to examine the incidence of the introduction in 1988 of tax incentives to retirement savings on contributions to pension funds and on savings. We first identify the population cohorts who most used these incentives. Then we use data on the evolution of consumption of these cohorts to find that there is substantial heterogeneity in the response of household saving to tax incentives. Most contributions to pension funds are by older/high income individuals. While the overall amount of new saving we estimate is limited (at most 25 cents per euro contributed on average), saving responses differ substantially across age groups. In particular, we document very small consumption drops among the group of households between 56 and 65 years of age, the group that most actively contributed to the plan, while we find instead a larger decrease in consumption expenditures of the group of households between 46 and 55 years of age.

Interest rate parity and foreign exchange risk premia in the ERM

Abstract In this paper we evaluate Uncovered Interest Rate Parity in the ERM by testing market efficiency and zero risk premia in a general asset pricing framework. The overidentifying conditions derived from the model are not rejected but we strongly reject risk neutrality. Nevertheless, estimated risk premia between ERM currencies are moderate to low. Therefore, due to the diversifiability of foreign exchange risk, the standard UIP relation between exchange rates and interest rates is a reasonable approximation within the ERM.

House Prices and Real Interest Rates in Spain

This paper analyses the contribution of interest rates to explain recent house price developments in Spain trying to reconcile different pieces of evidence. On the one hand, empirical evidence supports the view that interest rates are a key variable to explain house price developments. As a matter of fact, using simple asset pricing relations recent changes in house prices could be fully explained by movements in ex-post real interest rates. However, more refined asset pricing models show that the changes in the discount factor cannot fully explain the recent course of house prices in Spain. To resolve this puzzle we provide evidence that shows that the actual real cost of financing might have decreased significantly less than what the course of ex-post real rates would suggest.