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New York Municipal Bonds As a Leading Fiscal Indicator

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  • Joseph Cheng
  • Vigdis Boasson

Abstract

The S&P 500 has often been used as one of the leading economic indicators for predicting overall economic growth. However, there have been few studies done in the area of leading indicators for predicting the fiscal condition of municipalities. In this paper, we used a lagged regression model to compare the S&P 500 with New York municipal bonds as a leading indicator for the overall economic health of municipalities across the nation. We found that the return on New York State municipal bonds is a more reliable leading indicator than the S&P for predicting future returns of municipal bonds across the nation. Since the returns for national municipal bond funds are associated with the outlook for the local economies of all states, this finding suggests that changes in growth expectation or the level of investor confidence in the New York economy may precede that of the nation in general.

Suggested Citation

  • Joseph Cheng & Vigdis Boasson, 2005. "New York Municipal Bonds As a Leading Fiscal Indicator," New York Economic Review, New York State Economics Association (NYSEA), vol. 36(1), pages 50-56.
    • Handle: RePEc:nye:nyervw:v:36:y:2005:i:1:p:50-56
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    References listed on IDEAS

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    1. Stock, Duane, 1994. "Term structure effects on default risk premia and the relationship of default-risky tax-exempt yields to risk-free taxable yields -- a note," Journal of Banking & Finance, Elsevier, vol. 18(6), pages 1185-1203, December.
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