Is the Excess Bond Premium a Leading Indicator of Canadian Economic Activity?

Maxime Leboeuf and Daniel Hyun

No 2018-4, Staff Analytical Notes from Bank of Canada

Abstract: This note investigates whether Canadian corporate spreads and the excess bond premium (EBP) lead Canadian economic activity. Indeed, we find that corporate spreads precede changes in real gross domestic product (GDP) in Canada over the subsequent year. The EBP accounts for most of this property. Further, an unanticipated increase in the Canadian EBP forecasts a deterioration of domestic macroeconomic conditions: a 10-basis-point increase results in a fall in both GDP and consumer price index (CPI) of 0.4 per cent and 0.1 per cent, respectively, over three years.

Keywords: Business fluctuations and cycles; Financial markets (search for similar items in EconPapers)
JEL-codes: E E3 E32 E4 E44 G G1 G12 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2018
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Citations: View citations in EconPapers (8)

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