Abstract

http://ssrn.com/abstract=1376186
 
 

References (54)



 
 

Citations (47)



 


 



Credit Market Shocks and Economic Fluctuations: Evidence from Corporate Bond and Stock Markets


Simon Gilchrist


Boston University - Department of Economics; National Bureau of Economic Research (NBER)

Vladimir Yankov


Federal Reserve Board

Egon Zakrajsek


Federal Reserve Board - Division of Monetary Affairs

April 2009

NBER Working Paper No. w14863

Abstract:     
To identify disruptions in credit markets, research on the role of asset prices in economic fluctuations has focused on the information content of various corporate credit spreads. We re-examine this evidence using a broad array of credit spreads constructed directly from the secondary bond prices on outstanding senior unsecured debt issued by a large panel of nonfinancial firms. An advantage of our "ground-up'' approach is that we are able to construct matched portfolios of equity returns, which allows us to examine the information content of bond spreads that is orthogonal to the information contained in stock prices of the same set of firms, as well as in macroeconomic variables measuring economic activity, inflation, interest rates, and other financial indicators. Our portfolio-based bond spreads contain substantial predictive power for economic activity and outperform---especially at longer horizons---standard default-risk indicators. Much of the predictive power of bond spreads for economic activity is embedded in securities issued by intermediate-risk rather than high-risk firms. According to impulse responses from a structural factor-augmented vector autoregression, unexpected increases in bond spreads cause large and persistent contractions in economic activity. Indeed, shocks emanating from the corporate bond market account for more than 30 percent of the forecast error variance in economic activity at the two- to four-year horizon. Overall, our results imply that credit market shocks have contributed significantly to U.S. economic fluctuations during the 1990--2008 period.

Number of Pages in PDF File: 50

working papers series





Download This Paper

Date posted: April 13, 2009  

Suggested Citation

Gilchrist, Simon and Yankov, Vladimir and Zakrajsek, Egon, Credit Market Shocks and Economic Fluctuations: Evidence from Corporate Bond and Stock Markets (April 2009). NBER Working Paper No. w14863. Available at SSRN: http://ssrn.com/abstract=1376186

Contact Information

Simon Gilchrist (Contact Author)
Boston University - Department of Economics ( email )
270 Bay State Road
Boston, MA 02215
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Vladimir Yankov
Federal Reserve Board ( email )
20th & Constitution Ave. NW
Washington, DC 20551
United States
+1-202-912-7829 (Phone)
HOME PAGE: http://odalv.net
Egon Zakrajsek
Federal Reserve Board - Division of Monetary Affairs ( email )
20th and C Streets, NW
Washington, DC 20551
United States
202-728-5864 (Phone)
202-452-3819 (Fax)
Feedback to SSRN


Paper statistics
Abstract Views: 563
Downloads: 68
Download Rank: 203,135
References:  54
Citations:  47

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.297 seconds