EPI score effect on the Portuguese government bond yield spread

Abstract

This dissertation aims to understand if there is a relationship between environmental policies and the Portuguese cost of borrowing. I use a linear regression to estimate two models, one for the two years of government bond maturity to assess the relationship with the short-term cost of borrowing and the other for ten years of government bond maturity to estimate the association with the long-term cost of borrowing. The model controls for macroeconomic performance, fiscal conditions, foreign borrowing, inflation rate, labour productivity, demographic situation, global risk aversion, liquidity risk and, more importantly, the Environmental Performance Index. The results of the regressions estimated for the short-term maturity model and long-term model suggest that the EPI score has a positive relationship with the Portuguese government bond yield spread independently of the maturity of the bond. Furthermore, the EPI score is statistically significant for both maturities. This means that an EPI score increase is associated with an increase in the yield spread. The results of the analysis performed in this dissertation are that the environmental policies may have an opposite effect than the one expected (Capelle-Blancard, G., Crifo, P., Diaye, M.-A., Oueghlissi, R., & Scholtens, B. 2016), being associated with an increase (rather than a decrease) of the government cost of borrowing. That said, it is possible that these results are directly attributable to external factors that occurred during the time period studied (the introduction of the Euro, the subprime crisis and the government debt crisis).

Date of Award	23 Jan 2023
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Diana Bonfim (Supervisor)