IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Indicator Properties of the Paper-Bill Spread: Lessons from Recent Experiences

  • Benjamin M. Friedman
  • Kenneth N. Kuttner

A feature of U.S. post-war business cycle experience that is by now widely documented is the tendency of the spread between the respective interest rates on commercial paper and Treasury bills to widen shortly before the onset of recessions. By contrast, the paper- bill spread did not anticipate the 1990-91 recession. Empirical work presented in this paper supports two (not mutually exclusive) explanations for this departure from past experience. First, at least part of the paper-bill spread's predictive content with respect to business cycle fluctuations stems from its role as an indicator of monetary policy, but the 1990-91 recession was unusual in post-war U.S. experience in not being immediately precipitated by tight monetary policy. Second, movements of the spread during the few years just prior to the 1990-91 recession were strongly influenced by changes in the relative quantities of commercial paper, bank CDs and Treasury bills that occurred for reasons unrelated to the business cycle. This latter finding in particular sheds light on the important role of imperfect substitutability of different short-term debt instruments in investors portfolios, and highlights the burdens associated with using relative interest rate relationships as business cycle indicators.

If 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.

File URL: http://www.nber.org/papers/w4969.pdf
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4969.

as
in new window

Length:
Date of creation: Dec 1994
Date of revision:
Publication status: published as Review of Economics and Statistics, Vol. 80 (February 1998): 34-44.
Handle: RePEc:nbr:nberwo:4969
Note: ME
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Christopher A. Sims, 1992. "Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy," Cowles Foundation Discussion Papers 1011, Cowles Foundation for Research in Economics, Yale University.
  2. Ben S. Bernanke, 1990. "On the predictive power of interest rates and interest rate spreads," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 51-68.
  3. Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
  4. Leland E. Crabbe, 1993. "Anatomy of the medium-term note market," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Aug, pages 751-768.
  5. Benjamin M. Friedman & Kenneth Kuttner, 1993. "Why Does the Paper-Bill Spread Predict Real Economic Activity?," NBER Chapters, in: Business Cycles, Indicators and Forecasting, pages 213-254 National Bureau of Economic Research, Inc.
  6. Romer, Christina D. & Romer, David H., 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," Department of Economics, Working Paper Series qt5h07k8vf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  7. Anil K Kashyap & Jeremy C. Stein & David W. Wilcox, 1992. "Monetary Policy and Credit Conditions: Evidence From the Composition of External Finance," NBER Working Papers 4015, National Bureau of Economic Research, Inc.
  8. Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 11-44, January.
  9. James H. Stock & Mark W. Watson, 1989. "New Indexes of Coincident and Leading Economic Indicators," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409 National Bureau of Economic Research, Inc.
  10. Friedman, Benjamin M & Kuttner, Kenneth N, 1992. "Money, Income, Prices, and Interest Rates," American Economic Review, American Economic Association, vol. 82(3), pages 472-92, June.
  11. Charles W. Calomiris & Charles P. Himmelberg & Paul Wachtel, 1994. "Commercial Paper, Corporate Finance and the Business Cycle: A Microeconomic Perspective," Working Papers 94-17, New York University, Leonard N. Stern School of Business, Department of Economics.
  12. George L. Perry & Charles L. Schultze, 1993. "Was This Recession Different? Are They All Different?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 145-212.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4969. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.