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The relation between the corporate bond-yield spread and the realeconomy: Stable or time-varying?
Örebro University, Örebro University School of Business. (Stat@oru, MAFE, WAVE)ORCID iD: 0000-0003-0203-4688
Örebro University, Örebro University School of Business. (MAFE)ORCID iD: 0000-0002-4840-7649
2020 (English)In: Economics Letters, ISSN 0165-1765, E-ISSN 1873-7374, Vol. 186, article id 108883Article in journal (Refereed) Published
Abstract [en]

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.

Place, publisher, year, edition, pages
Elsevier, 2020. Vol. 186, article id 108883
Keywords [en]
Bayesian VAR, Time-varyingparameters, Stochasticvolatility, Modelselection
National Category
Economics Probability Theory and Statistics
Research subject
Economics; Statistics
Identifiers
URN: urn:nbn:se:oru:diva-78886DOI: 10.1016/j.econlet.2019.108883ISI: 000509616300048Scopus ID: 2-s2.0-85076182813OAI: oai:DiVA.org:oru-78886DiVA, id: diva2:1383184
Funder
The Jan Wallander and Tom Hedelius Foundation, P18-0201Available from: 2020-01-07 Created: 2020-01-07 Last updated: 2020-02-14Bibliographically approved

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Karlsson, SuneÖsterholm, Pär

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