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On the Self-Fulfilling Prophecy of Changes in Sovereign Ratings

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  • Ingmar Schumacher

    (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)

Abstract

We empirically investigate the dynamic interactions between sovereign ratings and the macroeconomic environment. We use a Panel VAR on annual data for European countries from 1986-2010. Our results provide evidence for a significant two-way interaction between the macroeconomic environment and changes in sovereigns' ratings. Thus, rating changes are able to exacerbate a country's boom-bust cycle.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number hal-00668284.

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Date of creation: 09 Feb 2012
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Handle: RePEc:hal:wpaper:hal-00668284

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Keywords: sovereign ratings; Panel VAR; self-fulfilling prophecy.;

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