首页|Using interest rates to predict economic growth: Are corporate bonds better?
Using interest rates to predict economic growth: Are corporate bonds better?
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NETL
NSTL
Wiley
We consider whether government bonds, through the term structure, orcorporate bonds, through the default yield, provide predictive power foroutput, consumption and investment growth in the United States. Suchpredictive power will allow policy-makers to use the information as a leadingindicator for macroeconomic performance and will improve our understandingof the links between real and financial markets. Full sample results suggestthat both interest rate series exhibit predictive power for each of the macroeconomic growth series. Time-variation in the predictive coefficient reveals thewaning influence of the term structure and the rising influence of the defaultyield. Forecast results, which are obtained from a rolling window approach,likewise suggest both series have information content for macroeconomicconditions, but there is a change in their relative strengths. These results mayarise as interest rates have declined since the highs of the early to mid-1980sthus reducing the information content of government yields, whereascorporate bonds respond more to investor views of macroeconomic risk, whichaffects a firm's ability to repay its debt. Furthermore, short-term rates arelargely held unprecedently low since the dotcom crash.
NETL
NSTL
Wiley
