Scandinavian Working Papers in Business Administration

Working Papers,
Örebro University, School of Business

No 2019:7: The Relation between the Corporate Bond-Yield Spread and the Real Economy: Stable or TimeVarying?

Sune Karlsson () and Pär Österholm ()
Additional contact information
Sune Karlsson: Örebro University School of Business, Postal: Örebro University, School of Business, SE - 701 82 ÖREBRO, Sweden
Pär Österholm: Örebro University School of Business, Postal: Örebro University, School of Business, SE - 701 82 ÖREBRO, Sweden

Abstract: In this paper we assess whether the relation between the corporate bond-yield spread and the real economy has been stable over time. Using quarterly US data from 1953Q1 to 2018Q2, we estimate Bayesian VAR models which allow for drifting parameters and/or stochastic volatility and conduct formal model selection in a Bayesian setting. Our results indicate that the relation between the variables has been stable; we do, however, find strong support for stochastic volatility. We conclude that the corporate bond-yield spread’s usefulness for predicting real economic activity has not changed to a relevant extent after the Great Reces-sion.

Keywords: Bayesian VAR; Time-varying parameters; Stochastic volatility; Model selection

JEL-codes: C11; C32; C52; E44; E47; G17

9 pages, September 25, 2019

Full text files 

wp-7-2019.pdf PDF-file Full text

Download statistics

Questions (including download problems) about the papers in this series should be directed to ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:oruesi:2019_007This page generated on 2024-11-09 04:36:08.