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The Power of Opinion: More Evidence of a GIPS-Markup in Sovereign Ratings During the Euro Crisis

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  • Steffen Nauhaus

Abstract

This paper examines whether the Big Three credit rating agencies actually played as active a role in the Euro Crisis as previously asserted. On the basis of panel data methods for a set of 11 EMU countries, the analysis reveals significant evidence for an arbitrary markup on the GIPS group of countries across agencies. This markup, which ranges from 1.5 notches for Moody’s to 2.2 notches for S&P, suggests that GIPS countries were treated worse than other EMU members since the start of the Eurozone crisis in 2009, irrespective of economic and institutional fundamentals. A subsequent analysis of the markup’s effect on yield spreads shows that this markup had significant effects on financial markets, leading to risk premiums for these countries of up to 1.6 points.

Suggested Citation

  • Steffen Nauhaus, 2015. "The Power of Opinion: More Evidence of a GIPS-Markup in Sovereign Ratings During the Euro Crisis," Discussion Papers of DIW Berlin 1501, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1501
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    More about this item

    Keywords

    Rating agencies; sovereign ratings; Eurozone; Euro crisis; debt crisis;
    All these keywords.

    JEL classification:

    • 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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