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Do Credit Rating Agencies Add to the Dynamics of Emerging Market Crises?

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  • Roman Kraeussl

    () (Vrije Universiteit Amsterdam)

Abstract

The experience in the period during and after the Asian crisis of 1997-98 has provoked an extensive debate about the credit rating agencies’ evaluation of sovereign risk in emerging markets lending. This study analyzes the role of credit rating agencies in international financial markets, particularly whether sovereign credit ratings have an impact on the financial stability in emerging market economies. The event study and panel regression results indicate that credit rating agencies have substantial influence on the size and volatility of emerging markets lending. The empirical results are significantly stronger in the case of government’s downgrades and negative imminent sovereign credit rating actions such as credit watches and rating outlooks than positive adjustments by the credit rating agencies while by the market participants’ anticipated sovereign credit rating changes have a smaller impact on financial markets in emerging economies.

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Bibliographic Info

Paper provided by Center for Financial Studies in its series CFS Working Paper Series with number 2003/18.

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Length: 50 pages
Date of creation: 18 Jan 2003
Date of revision:
Handle: RePEc:cfs:cfswop:wp200318

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Keywords: Sovereign Risk; Credit Ratings; Financial Crises;

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Cited by:
  1. Roman Kraeussl, 2003. "A Critique on the Proposed Use of External Sovereign Credit Ratings in Basel II," CFS Working Paper Series 2003/23, Center for Financial Studies.
  2. Roman Kraeussl, . "Do Changes in Sovereign Credit Ratings Contribute to Financial Contagion in Emerging Market Crises?," Working Papers 0314, University of Crete, Department of Economics.

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