Forecasting Future Economic Activity: The High-Yield Bond Spread as a Leading Indicator
Date
2017
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Producer
Director
Performer
Choreographer
Costume Designer
Music
Videographer
Lighting Designer
Set Designer
Crew Member
Funder
Rehearsal Director
Concert Coordinator
Advisor
Moderator
Panelist
Alternative Title
Department
Haverford College. Department of Economics
Type
Thesis
Original Format
Running Time
File Format
Place of Publication
Date Span
Copyright Date
Award
Language
eng
Note
Table of Contents
Terms of Use
Rights Holder
Access Restrictions
Open Access
Terms of Use
Tripod URL
Identifier
Abstract
This paper analyzes the ability of the high-yield bond spread to serve as a forecaster of business cycle activity in the United States. I compare the effectiveness of three credit spreads: a AAASpread, a BBSpread, and a CCCBelowSpread. The data used encompasses the time period 1996:M12 to 2016:M12, specifically to include the Great Recession of 2007/08. First, I run simple bivariate regressions to ascertain whether the credit spreads possess marginal information for three different business cycle indicators: real GDP, real disposable personal income, and employment. Next, I compare the performance of the spreads against one another by using trivariate-lagged regressions. I find that the credit spreads possess zero marginal information for forecasts of real disposable personal income, and very little for forecasts of real GDP. However, both the BBSpread and AAASpread show ability to forecast employment, with the AAASpread being the most effective forecaster at longer horizons.