EconPapers    
Economics at your fingertips  
 

Credit Market Shocks and Economic Fluctuations: Evidence from Corporate Bond and Stock Markets

Simon Gilchrist (), Vladimir Yankov () and Egon Zakrajsek ()

No 14863, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: To identify disruptions in credit markets, research on the role of asset prices in economic fluctuations has focused on the information content of various corporate credit spreads. We re-examine this evidence using a broad array of credit spreads constructed directly from the secondary bond prices on outstanding senior unsecured debt issued by a large panel of nonfinancial firms. An advantage of our "ground-up'' approach is that we are able to construct matched portfolios of equity returns, which allows us to examine the information content of bond spreads that is orthogonal to the information contained in stock prices of the same set of firms, as well as in macroeconomic variables measuring economic activity, inflation, interest rates, and other financial indicators. Our portfolio-based bond spreads contain substantial predictive power for economic activity and outperform---especially at longer horizons---standard default-risk indicators. Much of the predictive power of bond spreads for economic activity is embedded in securities issued by intermediate-risk rather than high-risk firms. According to impulse responses from a structural factor-augmented vector autoregression, unexpected increases in bond spreads cause large and persistent contractions in economic activity. Indeed, shocks emanating from the corporate bond market account for more than 30 percent of the forecast error variance in economic activity at the two- to four-year horizon. Overall, our results imply that credit market shocks have contributed significantly to U.S. economic fluctuations during the 1990--2008 period.

JEL-codes: E32 E44 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cba, nep-fmk and nep-mac
Date: 2009-04
Note: ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (214) Track citations by RSS feed

Published as Gilchrist, Simon & Yankov, Vladimir & Zakrajsek, Egon, 2009. "Credit market shocks and economic fluctuations: Evidence from corporate bond and stock markets," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 471-493, May.

Downloads: (external link)
http://www.nber.org/papers/w14863.pdf (application/pdf)

Related works:
Journal Article: Credit market shocks and economic fluctuations: Evidence from corporate bond and stock markets (2009) Downloads
Working Paper: Credit Market Shocks and Economic Fluctuations: Evidence from Corporate Bond and Stock Markets (2009) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:14863

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w14863

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2019-10-07
Handle: RePEc:nbr:nberwo:14863