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1、Credit Spreads and Business Cycle FluctuationsSimon GilchristEgon Zakraj sekJune 16, 2010AbstractThis paper re-examines the evidence on the relationship between credit spreads and economic activity. We construct a new credit spread index, employing an extensive micro-level data set of secondary mark
2、et prices of outstanding senior unsecured bondsover the 19732009 period. Compared with the standard default-risk and other finan- cial indicators, our credit spread index is a robust predictor of future economic growth across a variety of economic indicators, sample periods, and forecast horizons. U
3、sing an empirical bond-pricing framework, we also decompose our credit spread index into apredictable component that captures the available firm-specific information on expecteddefaults and a residual componentthe excess bond premiumwhich we argue reflects the price of default risk rather than the r
4、isk of default. Our results indicate that a sub- stantial portion of the predictive content of credit spreads for economic activity is due to the excess bond premium. Shocks to the excess bond premium that are orthogonal to the current state of the economy, the Treasury term structure, and stock ret
5、urns areshown to cause significant declines in consumption, investment, and output as well asin equity prices. Overall, our findings are consistent with the notion that an increasein the excess bond premium reflects a reduction in the risk appetite of the financialsector and, as a result, a contract
6、ion in the supply of credit with significant adverse consequences for the macroeconomy.JEL Classification: E32, E44, G12Keywords: corporate credit spreads, default-risk premium, economic fluctuationsWe thank Eric Swanson, Jonathan Wright, and participants at the 2010 CEGE Conference on Financial Sho
7、cks and the Real Economy for helpful comments and suggestions. Robert Kurtzman and Michael Levere provided outstanding research assistance. The views expressed in this paper are solely the responsibility ofthe authors and should not be interpreted as reflecting the views of the Board of Governors of
8、 the Federal Reserve System or of anyone else associated with the Federal Reserve System. Department of Economics Boston University and NBER. E-mail: sgilchribu.eduDivision of Monetary Affairs, Federal Reserve Board. E-mail: egon.zakrajsekfrb.gov1IntroductionBetween the summer of 2007 and the spring
9、 of 2009, the U.S. economy was gripped by anacute liquidity and credit crunch, by all accounts, the most severe financial crisis since theGreat Depression. At the height of the crisis in the autumn of 2008, the government, inan attempt to prevent the financial meltdown from engulfing the real econom
10、y, effectivelyassumed control of a number of systemically important financial institution; the Congress,faced with investors rapidly deteriorating confidence in the financial sector, approved theplan to inject a massive amount of capital into the banking system; and the Federal Reservedramatically e
11、xpanded the number of emergency credit and liquidity facilities in an attemptto support the functioning of private debt markets.Throughout this period of extreme financial turmoil, credit spreadsthe difference inyields between various private debt instruments and government securities of comparablem
12、aturityserved as a crucial gauge of the degree of strains in the financial system. In addi-tion, the movements in credit spreads were thought to contain important signals regardingthe evolution of the real economy and risks to the economic outlook, a view supported bythe insights from the large lite
13、rature on the predictive content of credit spreadsor assetprices more generallyfor future economic activity.1The focus on credit spreads is motivated, in part, by financial theories that departfrom the Modigliani and Miller 1958 paradigm of frictionless financial markets, theoriesthat emphasize link
14、ages between the quality of borrowers balance sheets and their accessto external finance. Movements in credit spreads may also reflect shifts in the effectivesupply of funds offered by financial intermediaries, which, in the presence of financial marketfrictions, have important implications for the
15、usefulness of credit spreads as predictors offuture economic activity. In the latter case, a deterioration in the balance sheets of financialintermediaries leads to a reduction in the supply of credit, causing an increase in the costof debt financethe widening of credit spreadsand a subsequent reduc
16、tion in spendingand production. In either case, credit spreads play a crucial role in the dynamic interactionof financial conditions with the real economy.In this paper, we re-examine the evidence on the relationship between corporate bondcredit spreads and economic activity. To do so, we first construct a credit spread indexthe “GZ credit spread”that has considerable predictive power for economic activity. Our1Financial indicators considered in this vast literature include
