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Rating Agencies and Sovereign Debt Rollover

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  • Carlson Mark

    ()
    (Board of Governors of the Federal Reserve)

  • Hale Galina B

    ()
    (Federal Reserve Bank of San Francisco)

Abstract

In order to explore how credit ratings may affect financial markets, we analyze a global game model of debt roll-over in which heterogeneous investors act strategically. We find that the addition of the rating agency has a non-monotonic effect on the probability of default and the magnitude of the response of capital flows to changes in fundamentals. We also establish that introducing a rating agency can bring multiple equilibria to a market that otherwise would have a unique equilibrium.

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File URL: http://www.degruyter.com/view/j/bejm.2006.6.2/bejm.2006.6.2.1375/bejm.2006.6.2.1375.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 6 (2006)
Issue (Month): 2 (September)
Pages: 1-32

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Handle: RePEc:bpj:bejmac:v:topics.6:y:2006:i:2:n:8

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Web page: http://www.degruyter.com

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Cited by:
  1. Holden, Steinar & Natvig, Gisle James & Vigier, Adrien, 2012. "An Equilibrium Model of Credit Rating Agencies," Memorandum 01/2013, Oslo University, Department of Economics.
  2. Mathis, Jérôme & McAndrews, James & Rochet, Jean-Charles, 2009. "Rating the raters: Are reputation concerns powerful enough to discipline rating agencies?," Journal of Monetary Economics, Elsevier, vol. 56(5), pages 657-674, July.
  3. Celjo-Hörhager, Sanela & Niessen, Alexandra, 2006. "How do self-fulfilling prophecies affect financial ratings? An experimental study," CFR Working Papers 06-13, University of Cologne, Centre for Financial Research (CFR).
  4. Andrea Morone & Giovanni Ferri, 2008. "The Effect of Rating Agencies on Herd Behaviour," series 0022, Dipartimento di Scienze Economiche e Metodi Matematici - Università di Bari, revised Nov 2008.
  5. Simone Alfarano & Andrea Morone & Eva Camacho, 2011. "The role of public and private information in a laboratory financial market," Working Papers. Serie AD 2011-06, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  6. Mahmoud Elamin, 2012. "Believe only what you see: credit rating agencies, structured finance, and bonds," Working Paper 1222, Federal Reserve Bank of Cleveland.

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