Summary of Credit-Market Sentiment and the Business Cycle

Looking for the report?
We have the summary! Get the key insights in just 5 minutes.

Credit-Market Sentiment and the Business Cycle summary
Start getting smarter:
or see our plans

Rating

7 Overall

7 Importance

8 Innovation

6 Style

Recommendation

Stock markets might be notoriously unreliable predictors of economic activity, but credit markets seem quite accurate at forecasting the future. Economists David Lopez-Salido, Jeremy C. Stein and Egon Zakrajsek analyzed decades of American market data and found that if spreads are low and junk bonds are popular today, you can expect a downturn in two years. Exactly why this occurs is open to debate, the authors admit, but it’s a tidbit of intelligence that savvy investors might want to take under advisement. One caveat: With a few exceptions, this report’s turgid prose will be tough sledding for readers who don’t possess advanced training in economics. Nonetheless, getAbstract recommends it to investors and policy makers for its insight into credit markets and the economy.

In this summary, you will learn

  • How credit markets can predict the economy’s future and
  • Why the stock market isn’t a reliable economic forecaster.
 

About the Authors

David Lopez-Salido and Egon Zakrajsek are economists at the Federal Reserve. Jeremy C. Stein is an economics professor at Harvard University.

 

Summary

If you want to know where the economy will head in two years, take a look at credit markets. According to an analysis of America’s financial markets, loose credit today is a strong predictor of tight credit in two years’ time. From 1929 to 2013, periods of optimistic lending climates led to worsening...

Get the key points from this report in 10 minutes.

For you

Find the right subscription plan for you.

For your company

We help you build a culture of continuous learning.

 or log in

Comment on this summary

More on this topic

By the same authors

Customers who read this summary also read

More by category