Corporate credit spreads and the Financial Accelerator Mechanism: Differentiating between credit rating, time to maturity and industry sector

Abstract: This paper aims at providing a detailed analysis of the leading indicator properties of corporate bond spreads for real economic activity in the euro area. In- and out-of-sample explanatory power of corporate bond spreads on economic growth is examined along four dimensions: the industry sector – i.e. distinction between financial and non-financial corporations, the bonds‟ credit ratings and their time to maturity. We find that there is evidence of a present Financial Accelerator Mechanism and that this is made more visible due to the recent financial crisis.