What credit market indicators tell us
AbstractJohn Duca shows that interest rate spreads and loan surveys should be interpreted carefully when assessing the availability of credit and its impact on the economy. This is especially true of interest rate spread indicators, some of which reflect prepayment, liquidity, or default risk premiums that have different economic implications. It can be helpful to decompose spreads before drawing economic inferences from the structure of interest rates. Spreads between yields on non-top-grade private-sector bonds and Treasury bonds, in particular, have a large prepayment premium in addition to a time-varying default risk premium. It is also important to recognize that even some decomposed spreads include more than one type of risk premium. In this regard, a widening of some yield spreads that contain a small default risk component, such as the Aaa-Treasury spread, could reflect a rise in prepayment or liquidity risk premiums, whose magnitudes may be hard to identify separately.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Federal Reserve Bank of Dallas in its journal Economic and Financial Policy Review.
Volume (Year): (1999)
Issue (Month): Q III ()
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John V. Duca, 1995. "Credit availability, bank consumer lending, and consumer durables," Working Papers 9514, Federal Reserve Bank of Dallas.
- John V. Duca, 2011.
"Did the commercial paper funding facility prevent a Great Depression-style money market meltdown?,"
1101, Federal Reserve Bank of Dallas.
- Duca, John V., 2013. "Did the commercial paper funding facility prevent a Great Depression style money market meltdown?," Journal of Financial Stability, Elsevier, vol. 9(4), pages 747-758.
- Duca, John V., 2010. "Did the Commercial Paper Funding Facility Prevent a Great Depression Style Money Market Meltdown?," MPRA Paper 29255, University Library of Munich, Germany, revised 22 Feb 2011.
- Zhiwei Zhang, 2002. "Corporate Bond Spreads and the Business Cycle," Working Papers 02-15, Bank of Canada.
- Michael Bleaney & Paul Mizen & Veronica Veleanu, . "Bond Spreads as Predictors of Economic Activity in Eight European Economies," Discussion Papers 12/11, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
- de Bondt, Gabe, 2002. "Euro area corporate debt securities market: first empirical evidence," Working Paper Series 0164, European Central Bank.
- Prakash Kannan, 2010. "Credit Conditions and Recoveries from Recessions Associated with Financial Crises," IMF Working Papers 10/83, International Monetary Fund.
- Kannan, Prakash, 2012. "Credit conditions and recoveries from financial crises," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 930-947.
- Chuderewicz, Russell P., 2002. "Using interest rate uncertainty to predict the paper-bill spread and real output," Journal of Economics and Business, Elsevier, vol. 54(3), pages 293-312.
- Mark Illing & Ying Liu, 2003. "An Index of Financial Stress for Canada," Working Papers 03-14, Bank of Canada.
- Vladimir Yankov & Egon Zakrajsek & Simon Gilchrist, 2009.
"Credit Market Shocks and Economic Fluctuations: Evidence from Corporate Bond and Stock Markets,"
2009 Meeting Papers
514, Society for Economic Dynamics.
- 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.
- Simon Gilchrist & Vladimir Yankov & Egon Zakrajsek, 2009. "Credit Market Shocks and Economic Fluctuations: Evidence from Corporate Bond and Stock Markets," NBER Working Papers 14863, National Bureau of Economic Research, Inc.
- Illing, Mark & Liu, Ying, 2006. "Measuring financial stress in a developed country: An application to Canada," Journal of Financial Stability, Elsevier, vol. 2(3), pages 243-265, October.
- Buchmann, Marco, 2011. "Corporate bond spreads and real activity in the euro area - Least Angle Regression forecasting and the probability of the recession," Working Paper Series 1286, European Central Bank.
- Michael Bleaney & Paul Mizen & Veronica Veleanu, 2013. "Bond Spreads and Economic Activity in Eight European Economies," Discussion Papers 2013/09, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
- James H. Stock & Mark W.Watson, 2003.
"Forecasting Output and Inflation: The Role of Asset Prices,"
Journal of Economic Literature,
American Economic Association, vol. 41(3), pages 788-829, September.
- James H. Stock & Mark W. Watson, 2001. "Forecasting output and inflation: the role of asset prices," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
- James H. Stock & Mark W. Watson, 2001. "Forecasting Output and Inflation: The Role of Asset Prices," NBER Working Papers 8180, National Bureau of Economic Research, Inc.
- Gabe de Bondt, 2004. "The balance sheet channel of monetary policy: first empirical evidence for the euro area corporate bond market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(3), pages 219-228.
- Hartmann, Daniel & Kempa, Bernd & Pierdzioch, Christian, 2008.
"Economic and financial crises and the predictability of U.S. stock returns,"
Journal of Empirical Finance,
Elsevier, vol. 15(3), pages 468-480, June.
- Hartmann, Daniel & Kempa, Bernd & Pierdzioch, Christian, 2006. "Economic and Financial Crises and the Predictability of U.S. Stock Returns," MPRA Paper 561, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Delia Rodriguez).
If references are entirely missing, you can add them using this form.