Abstract
We investigate the predictive power of loan spreads for forecasting business cycles, specifically focusing on more constrained, intermediary-reliant firms. We introduce a novel loan-market-based credit spread constructed using secondary corporate loan-market prices over the 1999 to 2023 period. Loan spreads significantly enhance the prediction of macroeconomic outcomes, outperforming other credit-spread indicators. We also explore the underlying mechanisms and differentiate between borrower fundamentals and financial frictions. Evidence suggests that supply-side frictions are a decisive factor in the forecasting ability of loan spreads.
Original language | English |
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Journal | The Review of Financial Studies |
Volume | 38 |
Issue number | 2 |
Pages (from-to) | 507–546 |
Number of pages | 40 |
ISSN | 0893-9454 |
DOIs | |
Publication status | Published - Feb 2025 |