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The paper-bill spread and real output: what matters more, a change in the paper rate or a change in the bill rate?

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  • Ewing, Bradley T.
  • Lynch, Gerald J.
  • Payne, James E.

Abstract

This paper adds to the literature on the information content of the paper‐bill spread by explicitly taking into account the two sources of wider spreads, rises in the paper rate and declines in the bill rate. Results from impulse response analysis and variance decompositions suggest that decreases in real output are greater and last longer when a widening of the paper‐bill spread comes from an increase in the paper rate rather than from an equivalent decrease in the bill rate. This is consistent with the idea that changes in the commercial paper rate have greater information content about future business cycles than do changes in the Treasury bill rate.
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  • Ewing, Bradley T. & Lynch, Gerald J. & Payne, James E., 2003. "The paper-bill spread and real output: what matters more, a change in the paper rate or a change in the bill rate?," Review of Financial Economics, Elsevier, vol. 12(3), pages 233-246.
    • Handle: RePEc:eee:revfin:v:12:y:2003:i:3:p:233-246
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    Cited by:

    1. Nippani, Srinivas & Shwiff, Steven S. & Arize, Augustine C., 2009. "A note on inventories and commercial paper yields," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 711-719, May.
    2. 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.
    3. Erdem Basci & Yusuf Soner Baskaya & Mustafa Kilinc, 2011. "Financial Shocks and Industrial Employment," Working Papers 1112, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    4. Malik, Farooq & Ewing, Bradley T. & Kruse, Jamie B. & Lynch, Gerald J., 2009. "Modeling the time-varying volatility of the paper-bill spread," Journal of Economics and Business, Elsevier, vol. 61(5), pages 404-414, September.
    5. Deschamps, Bruno & Ioannidis, Christos & Ka, Kook, 2020. "High-frequency credit spread information and macroeconomic forecast revision," International Journal of Forecasting, Elsevier, vol. 36(2), pages 358-372.

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