The Information in the High Yield Bond Spread for the Business Cycle: Evidence and Some Implications

Mark Gertler and Cara S. Lown

No 7549, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The market for high yield (below investment-grade) corporate bonds developed in the middle 1980s. We show that, since this time, the high yield spread has had significant explanatory power for the business cycle. We interpret this finding as possibly symptomatic of financial factors at work in the business cycle, along the lines suggested by the financial accelerator. We also show that over this period the high yield spread outperforms other leading financial indicators, including the term spread, the paper-bill spread and the Federal Funds rate. We conjecture that changes in the conduct of monetary policy over time may account for the reduced informativeness of these alternative indicators, all of which are tied closely to monetary policy.

JEL-codes: E37 E44 (search for similar items in EconPapers)
Date: 2000-02
New Economics Papers: this item is included in nep-mon
Note: AG EFG ME
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Citations: View citations in EconPapers (56)

Published as Gertler, Mark & Lown, Cara S, 1999. "The Information in the High-Yield Bond Spread for the Business Cycle: Evidence and Some Implications," Oxford Review of Economic Policy, Oxford University Press, vol. 15(3), pages 132-50, Autumn.

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Journal Article: The Information in the High-Yield Bond Spread for the Business Cycle: Evidence and Some Implications (1999)
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