The credit spread curve distribution and economic fluctuations in Japan

Predicting the future economy is of great interest to practitioners and policymakers. In this study, we confront problem by examining relationship between credit spread curves economic activity. To end, construct a monthly empirical distribution calculating spreads corporate bonds at firm level in Japan examine whether it can be used predict Japanese business cycle. We find that curve information higher deciles (implying lower quality) provides more predictive power for than government bond yield or index suggested previous studies. addition, smooth-transition regression analysis demonstrates have under low uncertainty regime, depict significant short horizon both regimes. Finally, our component-wise shows has robust producer-side indicators regime labor market conditions, regardless regime.