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Sovereign Credit Ratings Methodology: An Evaluation

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Author Info
Ashok Vir Bhatia
Abstract

This paper describes and evaluates the sovereign credit ratings methodologies of Standard & Poor's, Moody's Investors Service, and Fitch Ratings. A simple definition of ratings failure-based on ratings stability-is proposed and tested, pointing to falling failure rates, consistent upside bias, and strong interagency correlation. Possible causes of ratings failure are separated into informational, analytical, revenue bias, and other incentive problems, each of which is discussed. The paper seeks to highlight methodological developments after the Asian crisis, particularly with regard to the estimation of contingent liabilities and the assessment of international reserves adequacy.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/170.

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Length: 60 pages
Date of creation: 18 Oct 2002
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Handle: RePEc:imf:imfwpa:02/170

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Related research
Keywords: Credit ; Debt ; Crisis prevention ; Exchange risk ; Reserves adequacy ;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Nadeem Ul Haque & Manmohan S. Kumar & Donald J. Mathieson & Nelson C. Mark, 1996. "The Economic Content of Indicators of Developing Country Creditworthiness," IMF Working Papers 96/9, International Monetary Fund.
  2. Se-Jik Kim & Mark R. Stone, 1999. "Corporate Leverage, Bankruptcy, and Output Adjustment in Post-Crisis East Asia," IMF Working Papers 99/143, International Monetary Fund.
  3. Roman Kraussl, 2000. "Sovereign Credit Ratings And Their Impact On Recent Financial Crises," Departmental Working Papers 135, Tor Vergata University, CEIS. [Downloadable!]
    Other versions:
  4. Andrew Berg, 1999. "The Asia Crisis - Causes, Policy Responses and Outcomes," IMF Working Papers 99/138, International Monetary Fund.
  5. Roman Kraeussl, 2000. "Sovereign Ratings and Their Impact on Recent Financial Crises," Working Papers 0002, University of Crete, Department of Economics. [Downloadable!]
  6. Roberto Perrelli & Christian B. Mulder, 2001. "Foreign Currency Credit Ratings for Emerging Market Economies," IMF Working Papers 01/191, International Monetary Fund. [Downloadable!]
  7. Eduardo Borensztein & Gian Maria Milesi-Ferretti & Catherine A. Pattillo & Andrew Berg, 2000. "Anticipating Balance of Payments Crises--The Role of Early Warning Systems," IMF Occasional Papers 186, International Monetary Fund.
  8. Helmut Reisen & Julia von Maltzan, 1999. "Boom and Bust and Sovereign Ratings," OECD Development Centre Working Papers 148, OECD, Development Centre. [Downloadable!]
    Other versions:
  9. Amadou N. R. Sy, 2001. "Emerging Market Bond Spreads and Sovereign Credit Ratings: Reconciling Market Views with Economic Fundamentals," IMF Working Papers 01/165, International Monetary Fund. [Downloadable!]
    Other versions:
  10. Se Jik Kim & Mark R. Stone, 2000. "Corporate Leverage, Bankcruptcy and Output Adjustment in Post-Crisis East Asia," Microeconomics Working Papers 143, East Asian Bureau of Economic Research. [Downloadable!]
  11. Mark R. Stone, 2000. "The Corporate Sector Dynamics of Systemic Financial Crises," IMF Working Papers 00/114, International Monetary Fund.
  12. Kalpana Kochhar & Prakash Loungani & Mark R. Stone, 1998. "The East Asian Crisis - Macroeconomic Developments and Policy Lessons," IMF Working Papers 98/128, International Monetary Fund.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Benu Schneider, 2005. "Do Global Standards And Codes Prevent Financial Crises? Some Proposals On Modifying The Standards-Based Approach," UNCTAD Discussion Papers 177, United Nations Conference on Trade and Development. [Downloadable!]
  2. Aloisio Araujo & Marcia Leon, 2004. "Speculative Attacks on Debts and Optimum Currency Area: A Welfare Analysis," Working Papers Series 84, Central Bank of Brazil, Research Department. [Downloadable!]
  3. D. Johannes Juttner & David Chung & Wayne Leung, 2004. "Emerging Market Bond Returns – An Investor Perspective," Research Papers 0406, Macquarie University, Department of Economics. [Downloadable!]
  4. Marcus Noland, 2004. "Popular Attitudes, Globalization, and Risk," Peterson Institute Working Paper Series WP04-2, Peterson Institute for International Economics. [Downloadable!]
    Other versions:
  5. Amadou N. R. Sy, 2003. "Rating the Rating Agencies: Anticipating Currency Crises or Debt Crises," IMF Working Papers 03/122, International Monetary Fund. [Downloadable!]
    Other versions:
  6. Murray Petri, 2003. "Promoting Fiscal Transparency The Complementary Roles of the IMF, Financial Markets and Civil Society," IMF Working Papers 03/199, International Monetary Fund. [Downloadable!]
  7. Jorge Blázquez-Lidoy & Luciana Taft, 2003. "La sostenibilidad de la deuda externa en economías emergentes," Hacienda Pública Española, IEF, vol. 167(4), pages 157-183, December. [Downloadable!]
  8. David Hauner, 2006. "Fiscal Policy and Financial Development," IMF Working Papers 06/26, International Monetary Fund. [Downloadable!]
  9. Aliona Cebotari, 2008. "Contingent Liabilities: Issues and Practice," IMF Working Papers 08/245, International Monetary Fund. [Downloadable!]
  10. Ratha, Dilip & De, Prabal & Mohapatra, Sanket, 2007. "Shadow sovereign ratings for unrated developing countries," Policy Research Working Paper Series 4269, The World Bank. [Downloadable!]
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