The time-varying relationship between credit spreads and employment growth

Abstract

After the global financial crisis, several central banks introduced unconventional monetary policies, such as quantitative easing (QE). If QE increases asset prices, but does not boost the real economy to the same extent, the relationship between credit spreads and employment growth will weaken. This study investigates this issue for the U.S. in a moving-windows framework. Our results suggest that the link between credit spreads and employment growth is lower during bubbles and recessions. We also find that the relationship weakened after the Fed introduced QE.