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The Relation between the Corporate Bond-Yield Spread and the Real Economy: Stable or TimeVarying?

Sune Karlsson () and Pär Österholm

No 2019:7, Working Papers from Örebro University, School of Business

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 Reces-sion.

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)
Pages: 9 pages
Date: 2019-09-25
New Economics Papers: this item is included in nep-mac and nep-ore
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Journal Article: The relation between the corporate bond-yield spread and the real economy: Stable or time-varying? (2020) Downloads
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