spillover effects in wage determination an econometric analysis 1991 spillover effects in wage determination an econometric analysis applied economics vol 23 no 9 pp 1473 1482

credit risk measurement developments over the last 20 years abstract this paper traces developments in the credit risk measurement literature over the last 20 years the paper is essentially divided into two parts in the first part the evolution of the literature on the credit risk measurement of individual loans and portfolios of loans is traced by way of reference to articles appearing in relevant issues of the journal of banking and finance and other publications in the second part a new approach built around a mortality risk framework to measuring the risk and returns on loans and bonds is presented this model is shown to offer some promise in analyzing the risk return structures of portfolios of credit risk exposed debt instruments

do contracts matter in canada this paper empirically examines the view that wage rigidity in long term labor contracts matters for the behavior of employment in particular i follow bils s 1991 approach which looks for systematic employment patterns in the first year of long term contracts using a new panel data set which includes annual firm level employment observations from the canadian manufacturing sector i find evidence in many industries that employment over adjusts to shocks that occur during the contract my examination of wage dynamics however indicates that for those industries in which contracts appear to matter for the behavior of employment there is little indication that contractual wage rigidity is the source of the over adjustment of employment

wage rigidity in canadian collective bargaining agreements the authors search information on the provisions of 10 947 wage contracts signed in the canadian unionized sector between 1976 and 1999 for evidence of downward nominal wage rigidity the disinclination of wages to fall in nominal dollars below their established level over the sample period real wage reductions were common but nominal wage reductions were rare the probability of downward nominal wage rigidity increased substantially during low inflation periods during such periods apparently there was no reduction in the incidence of real wage cuts but the magnitude of those cuts was modest suggesting a lesser ability of wages to adjust to labor market conditions than at other times

the determinants of wage changes in indexed and nonindexed contracts a switching model wage changes in a sample 1979 86 of canadian wage contracts are analyzed the sample is split into cost of living allowance cola and non cola contracts econometric estimation corrects for sample selectivity bias in non cola contracts the unemployment rate and a proxy for expected inflation are significant expected industry price changes and productivity changes exert smaller but significant effects in cola contracts ex ante inflation coverage ranges between 60 and 100 of expected inflation catch up for previous uncompensated inflation the unemployment rate and expected inflation are also significant a common wage structure across cola and non cola contracts is rejected by the data

controlling for endogeneity of strike variables in the estimation of wage settlement equations this article analyzes wage changes with an unbalanced panel from the spanish collective bargaining in large firms survey central to the analysis are the joint determination of strike and wage outcomes and in particular the estimation of the slope of the wage concession curve i control for the possible endogeneity of strike variables in the wage equation and suggest two sets of instruments lagged strike outcomes or reduced form predictions of the strike variables when controlling for endogeneity a negative relationship between strike duration and the size of the wage change arises however short strikes still produce higher wage changes

the real consequences of market segmentation we study the real effects of market segmentation due to credit ratings using a matched sample of firms just above and just below the investment grade cutoff these firms have similar observables including average investment rates however flows into high yield mutual funds have an economically significant effect on the issuance and investment of the speculative grade firms relative to their matches especially for firms likely to be financially constrained the effect is associated with the discrete change

the effect of bond rating changes on bond price performance the price reaction of publicly traded industrial bonds to moody s investors service and standard poor s bond rating changes is investigated using a database of month end trader quotes from lehman brothers for march 1985 through march 1995 all standard poor s and moody s rating changes are studied in a period from up to 12 months before the rating change to 12 months after a unique feature of this study is the use of a data set containing recent firm specific information that also provides a long event window downgraded firms reveal a significant announcement effect in both the announcement month and preannouncement period the magnitude of downgrading effects increases dramatically as the sample moves from investment grade to non investment grade firms samples that are restricted to rating changes that are not preceded by any rerating within six months reveal that the market reacts reliably as much as six months before an event upgrade effects are much weaker in magnitude and significance

bank behavior based on internal credit ratings of borrowers abstract this study examines the relation of bank loan terms to borrower risk defined by the banks internal credit rating the analysis is not restricted to a static view it also incorporates rating transition and its implications on the relation money illusion and phenomena linked with relationship banking are discovered as important factors the results show that riskier borrowers pay higher loan rate premiums and rely more on bank finance housebanks obtain more collateral and provide more finance caused by money illusion in times of high market interest rates loan rate premiums are relatively small whereas in times of low market interest rates they are relatively high there was no evidence for an appropriate adjustment of loan terms to rating changes

the implications of corporate bond ratings drift examination of the ratings of over 7000 bonds issued in the 1970 88 period reveals that some 40 to 80 of bonds initially rated bb and above can be expected to experience at least one rating change in the 1 0 years following issuance a rated bonds appear to be more stable than aaarated bonds bb rated bonds the highest junk bond category are the least stable furthermore bonds initially rated a and above have a greater tendency to be downgraded than to be upgraded among the investment grades only bonds initially rated bbb tend to be upgraded more than they are downgraded as for bonds originally rated non investment grade junk there does not appear to be a tendency toward either upgrades or downgrades in the sample period

wage contract settlements in u s manufacturing a bstruactusing a large scale longitudinal micro data base this paper tests for the determinants of union wage settlements in manufacturing alternative specifications of wage change relationships were tested in data covering the years 1957 to 1980 among the most important determinants of union wage changes were the expected inflation rate inflationary surprises in indexed agreements incomes policy dummy variables and spillovers from key national agreements catch up effects from lagged inflationary surprises were not important in determining the size of new settlements

the importance and subtlety of credit rating migration abstract bond ratings are usually first assigned by rating agencies to public debt at the time of issuance and are periodically reviewed by the rating companies if deemed warranted changes in ratings are assigned after the review a change in a rating reflects the agency s assessment that the company s credit quality has improved upgrade or deteriorated downgrade a coincident effect in some proximity to the date of the rating change is a change in the price of the issue this article reports on an in depth investigation of the expected ratings changes drift over time our analysis compares rating changes from the two major agencies moody s and s p over the period 1970 1996 for the first time results from several studies which have documented and analyzed these data patterns are contrasted depending upon which study one uses the results and implications can be very different we expect that the findings will have implications for such diverse practitioners as bond investors who concentrate on any or all segments of the corporate bond market eg high yield bond and crossover investors mark to market analysts and traders in the new and growing market for credit risk derivatives and for the many analysts who properly view that credit quality assessment involves the entire spectrum of possible outcomes not just default a follow up study will analyze in greater depth two critical characteristics of the rating drift phenomenon these are unexpected as well as expected rating migration patterns and also the implied impact on the price of the fixed income instrument

dynamic bargaining with action dependent valuations abstract an infinite horizon dynamic bargaining model is presented in which actions affect the expected future value of the buyer seller match because actions directly affect the future surplus to be bargained over the model is unlike other models that tie the dynamic process to nature alone focusing on a subset of weak markov equilibria several results come about that are not found in static bargaining models using similar bargaining protocols in particular optimal price demands can be lower higher than the buyer s lowest highest possible valuation and several empirical features concerning wage settlements and strike incidence from labor union contract negotiations can be explained

cost of living escalators in major union contracts this paper analyzes the price indexation provisions of a sample of major canadian collective bargaining agreements concluded between 1968 and 1975 under these contracts escalated wage increases comprised about one third of total wage increases and represented a major source of erosion in the relative wages of skilled workers the author argues that indexation provisions are usefully characterized by the marginal elasticity of the contractual wage rate to increases in prices measures of this responsiveness indicate that on average contractual wage rates are only slightly less than unit elastic with respect to price increases there is considerable variation across industries however in the extent to which wages respond to price changes

a comparison of the cyclical behavior of union and nonunion wages in the united states this paper presents an extensive analysis of the behavior of union and nonunion wages over the business cycle using quasi panels developed from the current population survey in an attempt to resolve or reconcile competing claims about the cyclical behavior of union and nonunion wages union wages were roughly as procyclical as nonunion wages were prior to the early 1980s substantial reductions in union wage procyclicality since then are associated with reductions in the procyclical exercise of bargaining power

the intersection of market and credit risk abstract economic theory tells us that market and credit risks are intrinsically related to each other and not separable we describe the two main approaches to pricing credit risky instruments the structural approach and the reduced form approach it is argued that the standard approaches to credit risk management creditmetrics creditrisk and kmv are of limited value when applied to portfolios of interest rate sensitive instruments and in measuring market and credit risk empirically returns on high yield bonds have a higher correlation with equity index returns and a lower correlation with treasury bond index returns than do low yield bonds also macro economic variables appear to influence the aggregate rate of business failures the creditmetrics creditrisk and kmv methodologies cannot reproduce these empirical observations given their constant interest rate assumption however we can incorporate these empirical observations into the reduced form of jarrow and turnbull 1995b drawing the analogy risk 5 63 70 model here default probabilities are correlated due to their dependence on common economic factors default risk and recovery rate uncertainty may not be the sole determinants of the credit spread we show how to incorporate a convenience yield as one of the determinants of the credit spread for credit risk management the time horizon is typically one year or longer this has two important implications since the standard approximations do not apply over a one year horizon first we must use pricing models for risk management some practitioners have taken a different approach than academics in the pricing of credit risky bonds in the event of default a bond holder is legally entitled to accrued interest plus principal we discuss the implications of this fact for pricing second it is necessary to keep track of two probability measures the martingale probability for pricing and the natural probability for value at risk we discuss the benefits of keeping track of these two measures

structural shifts in credit rating standards i examine the time series variation in corporate credit rating standards from 1985 to 2007 a divergent pattern exists between investment grade and speculative grade rating standards from 1985 to 2002 as investment grade standards tighten and speculative grade loosen in 2002 a structural shift occurs toward more stringent ratings holding characteristics constant firms experience a drop of 1 5 notches in ratings due to tightened standards from 2002 to 2007 credit spread tests suggest that the variation in standards is not completely due to changes in the economic climate rating standards affect credit spreads loose ratings are associated with higher default rates

strategic bargaining models and interpretation of strike data attrition screening and signalling models of strategic bargaining are characterized in terms of their predictions about the incidence mean duration and settlement rates of strikes and the terms of wage settlements these predictions are compared with the general features observed in empirical studies of strikes in canada and the united states conclusions are drawn about the types of models capable of generating these features and about the conformity of the models to the evidence methods are described for computing the numerical examples used to illustrate the models

a model of discovery empirical research has reached the puzzling conclusion that stronger patents do little or nothing to encourage innovation we show that the facts that have led to the assumption of fixed cost in the discovery process can be equally well explained by a standard model of diminishing returns this may explain much of the misunderstanding of the supposedly positive role of monopoly in innovation and growth thereby accounting for the empirical puzzle

ratings migration and the business cycle with application to credit portfolio stress testing the turmoil in the capital markets in 1997 and 1998 has highlighted the need for systematic stress testing of banks portfolios including both their trading and lending books we propose that underlying macroeconomic volatility is a key part of a useful conceptual framework for stress testing credit portfolios and that credit migration matrices provide the specific linkages between underlying macroeconomic conditions and asset quality credit migration matrices which characterize the expected changes in credit quality of obligors are cardinal inputs to many applications including portfolio risk assessment modeling the term structure of credit risk premia and pricing of credit derivatives they are also an integral part of many of the credit portfolio models used by financial institutions by separating the economy into two states or regimes expansion and contraction and conditioning the migration matrix on these states we show that the loss distribution of credit portfolios can differ greatly as can the concomitant level of economic capital to be assigned

can r d expenditure avoid corporate bankruptcy comparison between japanese machinery and electric equipment industries using dea discriminant analysis abstract this study compares data envelopment analysis discriminant analysis dea da with altman s financial ratio analysis to identify the position of dea da in financial performance analysis then this study applies dea da to examine whether research and development r d expenditure influences the financial performance of japanese machinery industry and electric equipment industry the investigation of dea da identifies that the r d expenditure makes a positive impact on the financial performance of japanese machinery industry but it yields a negative impact on japanese electric equipment industry the result implies that the influence of r d expenditure on financial performance including the avoidance of bankruptcy depends upon the type of a manufacturing industry a rationale regarding why such a discrepancy has occurred between the two japanese manufacturing industries is because the life cycle of electric equipments is shorter than that of the machinery products furthermore the electric equipment industry faces more fierce competition than the machinery industry this study suggests that the japanese electric equipment industry needs r d expenditure for competition in its global market however it is a high risk and high return investment in contrast the japanese machinery is a technologically mature industry where the r d expenditure influences positively its financial performance in this sense the r d expenditure is a low risk and necessary investment

nominal wage rigidity in contract data a parametric approach using wage agreements reached in the canadian unionized sector during 1976 99 a period of high as well as exceptionally low inflation we consider how histograms of wage adjustment changed as inflation reached the low levels of the 1990s the histograms and parametric tests suggest that wage adjustment is characterized by downward nominal rigidity and significant spikes at zero there is some evidence of modest menu cost effects we examine whether the rigidity features of wage adjustment are sensitive to indexation provisions and investigate whether the distinction between short and long contracts is useful

the determinants and extent of uaw pattern bargaining the author using two new data sets covering uaw contract outcomes in a wide range of industries estimates the degree to which the union s target settlement with a big three automaker was followed in subsequent settlements in the same bargaining round over the years 1955 79 and 1987 90 using several different specifications and examining both wage levels and percent wage increases he finds that target settlements had large statistically significant spillover effects in all years although the effects were considerably smaller in 1987 90 than in 1955 79 bargaining unit size and industry had important influences on pattern following in all years firm specific financial health indicators had little influence on pattern following in the earlier period but an important influence in 1987 90

a multi factor credit migration model for sovereign and corporate debts abstract this paper develops a multi factor markov chain model for rating migrations and credit spreads that is applicable to both sovereign and corporate debts the model s central feature is to allow transition matrices to be time varying and driven by rating specific latent variables which encompass economic factors like the business cycle there are three main contributions first the model incorporates well documented empirical properties of transition matrices such as their dependence on business credit cycles and it also allows for inter rating variations in credit quality changes second instead of focusing solely on empirical modeling of rating transitions the paper also shows how the empirical model can be implemented for actual valuations third the estimation and calibration procedures are easy to follow and implement

union wage determination in canadian and u s manufacturing 1964 1990 a comparative analysis the author analyzes nominal and real wage changes in unionized manufacturing firms in canada and the united states over the years 1964 90 he finds more differences between the countries patterns of wage determination in the years 1964 79 than have commonly been recognized in the 1980s the nominal wage determination structure changed more sharply in the united states than in canada real wage determination changed little in the united states before 1986 while after 1986 observed real wage growth was significantly smaller than what would have been predicted based on patterns of bargaining in earlier years in canada real wages in the 1980s were significantly higher than they would have been if the previous patterns of wage determination had persisted both the nominal and real wage change results suggest that unions in u s manufacturing fared poorly in wage bargaining in the 1980s by comparison with their canadian counterparts