Using U.S. data from 1929 to 2015, we show that elevated credit-market sentiment in year t-2 is associated with a decline in economic activity in years t and t+1. Underlying this result is the existence of predictable mean reversion in credit-market conditions. When credit risk is aggressively...

Using U.S. data from 1929 to 2013, we show that elevated credit-market sentiment in year t-2 is associated with a decline in economic activity in years t through t 2. Underlying this result is the existence of predictable mean reversion in credit-market conditions. That is, when our sentiment...