PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies
AbstractThis paper asks whether rating agencies played a passive role or were an active driving force during Europe's sovereign debt crisis. We address this by estimating relationships between sovereign debt ratings and macroeconomic and structural variables. We then use these equ-ations to decompose actual ratings into systematic and arbitrary components that are not explained by observed previous procedures of rating agencies. Next, we check whether both systematic and arbitrary parts of credit ratings affect credit spreads. We find that both do, which opens the possibility that arbitrary rating downgrades trigger processes of self-fulfilling prophecy that may drive even relatively healthy countries towards default.
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Bibliographic InfoArticle provided by Springer in its journal International Advances in Economic Research.
Volume (Year): 17 (2011)
Issue (Month): 3 (August)
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Web page: http://www.springerlink.com/link.asp?id=112112
Rating agencies; Sovereign debt; Credit risk; Eurozone; Panel data; Debt crisis; G24; H63; F34;
Other versions of this item:
- Gärtner, Manfred & Griesbach, Bjoern & Jung, Florian, 2011. "PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies," Economics Working Paper Series 1106, University of St. Gallen, School of Economics and Political Science.
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
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