The relation between the corporate bond-yield spread and the real economy: Stable or time-varying?

Sune Karlsson () and Pär Österholm

Economics Letters, 2020, vol. 186, issue C

Abstract: In this paper we assess whether the relation between the corporate bond-yield spread and the real economy has been stable over time. Using quarterly US data from 1953Q1 to 2018Q2, we estimate Bayesian VAR models which allow for drifting parameters and/or stochastic volatility and conduct formal model selection in a Bayesian setting. Our results indicate that the relation between the variables has been stable; we do, however, find strong support for stochastic volatility. We conclude that the corporate bond-yield spread’s usefulness for predicting real economic activity has not changed to a relevant extent after the Great Recession.

Keywords: Bayesian VAR; Time-varying parameters; Stochastic volatility; Model selection (search for similar items in EconPapers)
JEL-codes: C11 C32 C52 E44 E47 G17 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: The Relation between the Corporate Bond-Yield Spread and the Real Economy: Stable or TimeVarying? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:186:y:2020:i:c:s0165176519304458

DOI: 10.1016/j.econlet.2019.108883

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