This paper investigates features of credit risk using non-parametric techniques, studying determinants of risk premia using a non-parametric term-structure model of the corporate spread. The model, which measures the extra return of defaultable corporate bonds on their government counterparts, involves the rate of inflation, a key macroeconomic variable that is found to explain the spread non-linearly. This approach demonstrates the usefulness of non-linear approaches in contrast with standard linear approaches. The model is also useful to forecast the future course of the spread.
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