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12 hence corporate borrowing costs actually ally fell

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Unformatted text preview: ble to the U.S. Treasury; the figure also shows, for example, that the spread between the average yield on Baa-rated corporate bonds and 10-year Treasuries Treasuries also fell between 2004 and 2006.12 Hence corporate borrowing costs actually ally fell, despite the increase in the federal funds rate, owing to the declines in the two spreads! In contrast, the increases in the two spreads during the financial crisis greatly greatly increased the cost of borrowing. Even Even in the case of short-term borrowing, the federal funds rate alone is not always an adequate measure of money market conditions. Figure 5 also plots the spread between the three-month U.S. dollar London Interbank Offer Rate 11 For example, see the “fitted” long rates implied by the forecasting model of Kim and Wright (2005). Indeed, the series plotted in Figure 5 is taken from the estimates of Kim and Wright (2005); their series is updated at ⟨http://www.federalreserve.gov/econresdata/researchdata.htm⟩. 12 The spread between yields on this class of moderately...
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This note was uploaded on 11/23/2013 for the course ECON 11837649 taught by Professor Batchelder during the Spring '10 term at Pepperdine.

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