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Determinants of Spread and Credit Ratings and Creditworthiness for Emerging Market Sovereign Debt: A Follow-Up Study Using Pooled Data Analysis

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  • Peter Rowland

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    Abstract

    The study presented here is a follow-up study to Rowland and Torres (2004),who used a panel data framework together with data from 16 emerging market issuers to identify the determinants of the spread and the creditworthiness. Since many new issuers of emerging market sovereign debt have emerged recently, we can by using data from one single point in time, end of july 2003, expand our country set to 29 for the analysis of the spread and around 50 for the analysis of the credit ratings and the creditworthiness. We will used an OLS regression framework for the empirical analysis. The study identifies some seven variables that play a role in determining ratings, creditworthiness and spreads. These include the GDP per capita, the economic growth rate, the inflation rate, external-debt ratios, debt-service ratios, the level of international reserves, and the openness of the economy. Emerging market policy makers and investors should pay extra attention to these variables when defining economic policies and evaluating bond issues.

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    Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 296.

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    Handle: RePEc:bdr:borrec:296

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    1. Budina, Nina & Mantchev, Tzvetan, 2000. "Determinants of Bulgarian Brady bond prices - an empirical assessment," Policy Research Working Paper Series, The World Bank 2277, The World Bank.
    2. Richard Cantor & Frank Packer, 1996. "Determinants and impact of sovereign credit ratings," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Oct, pages 37-53.
    3. Hong G. Min, 1998. "Determinants of emerging market bond spread : do economic fundamentals matter?," Policy Research Working Paper Series, The World Bank 1899, The World Bank.
    4. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    5. Peter Rowland & José Luis Torres, . "Determinants of Spread and Creditworthiness for Emerging Market Sovereign Debt:A Panel Data Study," Borradores de Economia, Banco de la Republica de Colombia 295, Banco de la Republica de Colombia.
    6. Álvaro Rojas O. & Felipe Jaque S., 2003. "Determinants of the Chilean Sovereign Spread: is it Purely Fundamentals?," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 137-163, July-Dece.
    7. António Afonso, 2002. "Understanding the Determinants of Government Debt Ratings: Evidence for the Two Leading Agencies," Working Papers Department of Economics, ISEG - School of Economics and Management, Department of Economics, University of Lisbon 2002/02, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
    8. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
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