Impact of wage rigidity on sovereign credit rating

Daecheon Yang and Jeongseok Song

Emerging Markets Review, 2018, vol. 34, issue C, 25-41

Abstract: Sovereign credit rating is a condensed assessment of a country's ability to repay its public debt in a timely fashion. Downward wage rigidity has been considered as a critical determinant of various macroeconomic and financial phenomena. This study examines the effect of a country's wage rigidity on its sovereign credit rating after measuring downward wage rigidities based on a regime-switching model. The results indicate that greater wage rigidity induces lower sovereign credit rating. We find that wage rigidity amplifies cash flow fluctuations and magnified cash flow volatility negatively affects sovereign credit rating.

Keywords: Wage rigidity; Sovereign credit rating; Regime switching; Cash flow volatility (search for similar items in EconPapers)
JEL-codes: E24 G32 J31 M41 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:34:y:2018:i:c:p:25-41

DOI: 10.1016/j.ememar.2017.10.002

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