A Pure Test for the Elasticity of Yield Spreads

¹⁷ Interested readers can obtain more information on RRBs from Bank of Canada website.

¹⁸ Moody’s speculative-grade default rate forecasts are generated with a Poisson regression model, with
the independent variables that proxy changes in credit quality, an aging effect (to reflect the changing
nature of default risk with the time that elapsed since issuance), and macroeconomic variables. For details
see Keenan, Sobehart, and Hamilton (1999). We thank David Hamilton for providing us the time series of
the speculative-grade default rate forecast.

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