TAILIEUCHUNG - MARKET POWER AND BANK INTEREST RATE ADJUSTMENTS - Documentos de Trabajo N.º 0539

The different views presented in the previous section suggest different aspects of how the SGP could affect capital market expectations about future developments, and hence prices for fixed government securities. If a strict interpretation of the SGP reduces budgetary flexibility and short-term growth prospects, it might lead to lower short or medium term interest rates. Conversely, if the central bank considers any breach or lax implementation of the Pact as an indication of an unduly expansionary fiscal policy leading to higher inflation, it could foreclose a monetary easing. Institutional strictness could then be conducive to lower short or medium-term rates. Finally, if the default risk premium prevails, this. | MARKET POWER AND BANK INTEREST RATE ADJUSTMENTS 2005 Raquel Lago-González and Vicente Salas-Fumás Documentos de Trabajo N. 0539 BANCO DE ESPANA MARKET POWER AND BANK INTEREST RATE ADJUSTMENTS MARKET POWER AND BANK INTEREST RATE ADJUSTMENTS Raquel Lago-Gonzalez BANCO DE ESPANA Vicente Salas-Fumás UNIVERSIDAD DE ZARAGOZA AND BANCO DE ESPANA This paper is the sole responsibility of its authors and the views presented here do not necessarily reflect those of the Banco de Espana. The authors thank Ramón Caminal Joaquin Maudos Jesus Saurina an anonymous referee and the participants of the 25th SUERF Colloquium Madrid October 2004 of the Banking and Finance Seminar University of Valencia and IVIE Ferbruary 2005 and of the EARIE conference Oporto September 2005 for their comments to earlier versions of the paper. Any remaining error is entirely the authors own responsibility. Address for correspondence Raquel Lago C Alcalá 48 28014 Madrid Spain. Phone 34913386179 e-mail or vsalas@. Documentos de Trabajo. N. 0539 .

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