The predictive ability of a risk-adjusted yield spread for economic activity in Europe

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dc.contributor.authorGuender, A.V.
dc.contributor.authorTolan, B.
dc.date.accessioned2016-07-31T23:50:50Z
dc.date.available2016-07-31T23:50:50Z
dc.date.issued2016en
dc.description.abstractThis paper examines whether the pricing of risk is important for macroeconomic activity at the country level. We design a risk-adjusted yield spread and test its predictive content for economic activity on the periphery and the centre of Europe over the 1990-2012 period. This risk-adjusted bond yield spread is defined in a cross-country context and referred to as the GZ-type spread. Increases in the yield on corporate bonds issued in the countries on the periphery relative to the riskless yield (calculated using German zero-coupon term structure data) reflect increases in the risk premium that the financial market imposes on borrowers. The risk premium rises in all countries during European-wide recessions of the recent past, particularly those associated with the Global Financial and the Sovereign Debt Crisis. Our findings indicate further that this GZ-type spread acts as a reliable signal for imminent and near-term economic activity in countries where financial markets were shaken to their foundations during the Crisis period. For Germany, the GZ-spread has predictive content for industrial production but not for the unemployment rate. For GDP its predictive ability is confined to the EMU period.en
dc.identifier.citationGuender, A., Tolan, B. (2016) The predictive ability of a risk-adjusted yield spread for economic activity in Europe. Empirica. Journal of European Economics, (early access online).en
dc.identifier.doihttps://doi.org/10.1007/s10663-015-9309-z
dc.identifier.urihttp://hdl.handle.net/10092/12540
dc.language.isoen
dc.publisherUniversity of Canterbury. Department of Economics and Financeen
dc.rights.urihttps://hdl.handle.net/10092/17651
dc.subjectcorporate bond yield spreaden
dc.subjectpredictive contenten
dc.subjecteconomic activity in Europeen
dc.subjectfinancial and debt crisisen
dc.subject.anzsrcFields of Research::38 - Economics::3801 - Applied economics::380112 - Macroeconomics (incl. monetary and fiscal theory)en
dc.subject.anzsrcField of Research::14 - Economics::1402 - Applied Economics::140210 - International Economics and International Financeen
dc.titleThe predictive ability of a risk-adjusted yield spread for economic activity in Europeen
dc.typeJournal Article
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