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Do fiscal imbalances deteriorate sovereign debt ratings?

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  • António Afonso
  • Pedro Gomes

Abstract

We use sovereign debt rating estimations from Afonso, Gomes and Rother (2009, 2010) for Fitch, Moody’s, and Standard & Poor’s, to assess to what extent the recent fiscal imbalances are being reflected on the sovereign debt notations. We use macro and fiscal data up to 2009, and macro and fiscal projections, to obtain the expected rating for several OECD countries. The answer to the title question is yes, but in a diverse way for each country. Our average model predictions point to a heterogeneous behaviour of rating agencies across countries.

Suggested Citation

  • António Afonso & Pedro Gomes, 2010. "Do fiscal imbalances deteriorate sovereign debt ratings?," Working Papers Department of Economics 2010/24, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    • Handle: RePEc:ise:isegwp:wp242010
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    References listed on IDEAS

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    1. Bissoondoyal-Bheenick, Emawtee, 2005. "An analysis of the determinants of sovereign ratings," Global Finance Journal, Elsevier, vol. 15(3), pages 251-280, February.
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    Cited by:

    1. Nicolas Jannone Bellot, MaLuisa Marti Selva, Leandro Garcia Menendez, 2017. "Herding Behaviour among Credit Rating Agencies," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 2(1), pages 56-83, March.
    2. Afonso, António & Furceri, Davide & Gomes, Pedro, 2012. "Sovereign credit ratings and financial markets linkages: Application to European data," Journal of International Money and Finance, Elsevier, vol. 31(3), pages 606-638.
    3. Cordero, Alvaro & Villena, Mauricio, 2020. "Política y Sostentabilidad Fiscal en tiempos de Covid-19: El Caso de Chile [Fiscal Policy in Covid-19 Times: The Case of Chile]," MPRA Paper 100791, University Library of Munich, Germany, revised 20 May 2020.
    4. António Afonso, 2013. "Anatomy of a fiscal débacle: the case of Portugal," Working Papers Department of Economics 2013/01, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    5. Simona VINEREAN, 2013. "From Liquidity Crisis to Sovereign Debt Crisis," Expert Journal of Finance, Sprint Investify, vol. 1(1), pages 19-27, December.
    6. Afonso, António & Nunes, Ana Sofia, 2015. "Economic forecasts and sovereign yields," Economic Modelling, Elsevier, vol. 44(C), pages 319-326.
    7. Emilian C. Miricescu & Lucian Ţâţu & Delia Cornea, 2016. "The Determinants of the Sovereign Debt Rating: Evidence for the European Union Countries," ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH, Faculty of Economic Cybernetics, Statistics and Informatics, vol. 50(1), pages 175-188.
    8. Duygun, Meryem & Ozturk, Huseyin & Shaban, Mohamed, 2016. "The role of sovereign credit ratings in fiscal discipline," Emerging Markets Review, Elsevier, vol. 27(C), pages 197-216.
    9. Merve Kırkıl, 2021. "Sovereign Credit Risk Rating: Examining the Relations between Domestic Economy Data and the Probability of Default," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 8(1), pages 57-74, January.
    10. Huseyin Ozturk*, 2014. "The origin of bias in sovereign credit ratings: reconciling agency views with institutional quality," Journal of Developing Areas, Tennessee State University, College of Business, vol. 48(4), pages 161-188, October-D.

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    More about this item

    Keywords

    credit ratings; sovereign debt; rating agencies.;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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