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Foreign Currency Credit Ratings for Emerging Market Economies

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  • Roberto Perrelli
  • Christian B. Mulder

Abstract

This paper examines how ratings for emerging market economies have been set. Given the high degree of autocorrelation in ratings, we use estimators that yield consistent parameters in the presence of such correlation. The results show that rating changes for emerging market economies have been dominated by variables different from those suggested by the literature. We also conclude that some deterioration in the ratings was warranted during the recent crisis episodes in view of the behavior of economic fundamentals, but that the agencies overreacted for several key countries. We find evidence of a structural break: since the Asian crisis period, ratings have been influenced by reserves in relation to short-term debt.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/191.

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Length: 23
Date of creation: 01 Dec 2001
Date of revision:
Handle: RePEc:imf:imfwpa:01/191

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Related research

Keywords: Emerging markets; statistics; autocorrelation; equation; short-term debt; covariance; samples; debt rescheduling; external debt; balance of payments; logarithm; probability; ratio of debt; financial statistics; crisis countries; random walk; debt service to exports; difference equation; standard errors; current account; current account deficit; estimation technique; debt service; estimation method; difference equations; sovereign bonds; reserve bank; independent variables; ratio of debt service to exports; correlation; probabilities; outliers; total external debt; econometrics; public debt; debt burden; ratios of debt to exports; international lending; equations; debt problems; sovereign default; ratios of debt;

References

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  1. Pamela Nickell & William Perraudin & Simone Varotto, 2001. "Stability of ratings transitions," Bank of England working papers, Bank of England 133, Bank of England.
  2. Taimur Baig & Ilan Goldfajn, 1998. "Financial Market Contagion in the Asian Crisis," IMF Working Papers 98/155, International Monetary Fund.
  3. Sebastian Edwards, 1983. "LDC's Foreign Borrowing and Default Risk: An Empirical Investigation," NBER Working Papers 1172, National Bureau of Economic Research, Inc.
  4. 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.
  5. Christian B. Mulder & Brieuc Monfort, 2000. "Using Credit Ratings for Capital Requirementson Lending to Emerging Market Economies," IMF Working Papers 00/69, International Monetary Fund.
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Citations

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Cited by:
  1. Rosemarie Bröker Bone, 2005. "A Importância Dos Fundamentos Nos Ratings Soberanos Brasileiros, 1994-2002," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of 037, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  2. 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.
  3. Ashok Vir Bhatia, 2002. "Sovereign Credit Ratings Methodology," IMF Working Papers 02/170, International Monetary Fund.
  4. Hesam Aldin SHAHRIVAR & Nwin Anefo Fru ASABA, 2013. "Assessment of the Impact of Trade Partner’s Cross-Country Sovereign Rating on the Financial Market of Selected Emerging Market Economies," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, Ege University Faculty of Economics and Administrative Sciences, vol. 13(2), pages 137-150.
  5. Renee Fry-McKibbin & Sumila Wanaguru, 2012. "Currency Intervention: A Case Study of an Emerging Market," CAMA Working Papers 2012-32, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  6. Antonio Díez de los Ríos & Alicia García Herrero, 2003. "Contagion and portfolio shift in emerging countries' sovereign bonds," Banco de Espa�a Working Papers 0317, Banco de Espa�a.
  7. Rasha Alsakka & Owain ap Gwilym, 2010. "The Extent and Causes of Sovereign Split Ratings," Working Papers 10008, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  8. Amadou N. R. Sy, 2001. "Emerging Market Bond Spreads and Sovereign Credit Ratings," IMF Working Papers 01/165, International Monetary Fund.
  9. International Monetary Fund, 2005. "Fiscal Transparency and Economic Outcomes," IMF Working Papers 05/225, International Monetary Fund.
  10. Jorge Iván Canales Kriljenko & Cem Karacadag & Roberto Pereira Guimarães, 2003. "Official Intervention in the Foreign Exchange Market," IMF Working Papers 03/152, International Monetary Fund.
  11. Rasha Alsakka & Owain ap Gwilym, 2010. "Sovereign Ratings and Migrations: Emerging Markets," Working Papers 10009, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  12. Sy, Amadou N. R., 2002. "Emerging market bond spreads and sovereign credit ratings: reconciling market views with economic fundamentals," Emerging Markets Review, Elsevier, Elsevier, vol. 3(4), pages 380-408, December.
  13. Aktug, R. Erdem & Nayar, Nandkumar (Nandu) & Vasconcellos, Geraldo M., 2013. "Is sovereign risk related to the banking sector?," Global Finance Journal, Elsevier, vol. 24(3), pages 222-249.
  14. Andrew Tiffin & Christian B. Mulder & Charalambos Christofides, 2003. "The Link Between Adherence to International Standards of Good Practice, Foreign Exchange Spreads, and Ratings," IMF Working Papers 03/74, International Monetary Fund.
  15. Laura Jaramillo, 2010. "Determinants of Investment Grade Status in Emerging Markets," IMF Working Papers 10/117, International Monetary Fund.
  16. Al-Sakka, Rasha & ap Gwilym, Owain, 2010. "Split sovereign ratings and rating migrations in emerging economies," Emerging Markets Review, Elsevier, Elsevier, vol. 11(2), pages 79-97, June.

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