The information in the high-yield bond spread for the business cycle: Evidence and some implications

Mark Gertler, Cara S. Lown

    Research output: Contribution to journalArticlepeer-review

    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.

    Original languageEnglish (US)
    Pages (from-to)132-150
    Number of pages19
    JournalOxford Review of Economic Policy
    Volume15
    Issue number3
    DOIs
    StatePublished - 1999

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Management, Monitoring, Policy and Law

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