THE EFFECT OF MONETARY POLICY ON CREDIT SPREADS

We analyze the effect of monetary policy on yield spreads between corporate bonds with different credit ratings over the business cycle. We use futures contracts to distinguish between expected and unexpected changes in the Fed funds target rate and several indicators to distinguish between different phases of the business cycle. In line with the predictions of imperfect capital market theories, we find that yields on corporate bonds with low credit ratings widen (narrow) with respect to those with high credit ratings following an unexpected increase (decrease) in the Fed funds target rate during recession periods. Several tests suggest that our results are robust to outliers, potential endogeneity problems, empirical specification, control variables, countercyclical risk premium in futures, and alternative definitions of credit spreads and economic conditions.     

The US real GNP is trend-stationary after all

This article applies the Fractional Frequency Flexible Fourier Form (FFFFF) Dickey–Fuller (DF)-type unit root test on the natural logarithm of US real GNP over the quarterly period of 1875:1–2015:2, to determine whether the same is trend- or difference-stationary. While standard and Integer Frequency Flexible Fourier Form DF-type test fails to reject the null of unit root, the relatively more powerful FFFFF DF-type test provides strong evidence of the real GNP as being trend-stationary, i.e. US output returns to a deterministic log-nonlinear trend in the long run.     

A Bayesian multivariate Poisson regression model of cross-category store brand purchasing behavior

The availability of cross-category transaction data in the retailing industry has enabled the investigation of interdependence in consumer purchase behavior across product categories. In this paper, we develop a multivariate count model to uncover and predict the pattern of cross-category store brand purchasing behavior. The proposed multivariate Poisson regression model, which we estimate using a Bayesian approach, provides flexibility in capturing cross-category correlations for sparse multivariate purchase data associated with infrequently purchased categories or purchasing in retail outlets such as warehouse clubs. We compare the goodness-of-fit of the proposed Poisson regression model with alternate benchmark models using customer purchase records across five product categories from a national warehouse club and find that the proposed model provides a superior fit. We also carry out a profitability analysis to illustrate the use of the model in planning cross-promotions.