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Sovereign Ratings: An Analysis of the Degree, Changes and Source of Moodys Judgement

Author

Listed:
  • Rudolf Alvise Lennkh

    (Scope ratings)

  • Edmund Moshammer

    (ESM)

Abstract

This paper studies the sovereign ratings of 74 countries from 2003 to 2016, disentangling rating drivers into a fundamental and judgement component based on Moodys methodology. We show that the agency applies judgement inconsistently across regions, income, rating levels and factors, time and the direction of rating changes. While downgrades are significantly linked to contemporaneous negative fundamental developments, such as weakening public finances, for upgrades we find evidence of a lagged or ‘catching-up’ effect. Out of the 29 tested explanatory variables, judgement applied by the rating committee is best explained through government bond yields, real GDP growth, the debt trend and interest payments relative to revenues.

Suggested Citation

  • Rudolf Alvise Lennkh & Edmund Moshammer, 2018. "Sovereign Ratings: An Analysis of the Degree, Changes and Source of Moodys Judgement," Working Papers 27, European Stability Mechanism.
    • Handle: RePEc:stm:wpaper:27
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Nikos Ventouris & Georgios Palaiodimos, 2022. "Proposals for the reform of EU fiscal rules," Economic Bulletin, Bank of Greece, issue 55, pages 67-81, July.
    2. Christos Catiforis, 2022. "Post-pandemic inflation: Phillips Curve, trends, drivers and lessons," Economic Bulletin, Bank of Greece, issue 55, pages 43-65, July.
    3. Jinho Choi & Alexander den Ruijter & Kimi Xu Jiang & Edmund Moshammer, 2022. "Japan’s sovereign rating in the post-pandemic era," Working Papers 52, European Stability Mechanism.
    4. Sofia Anyfantaki & Petros Migiakis & Katerina Paisiou, 2022. "Green finance in Europe: actors and challenges," Economic Bulletin, Bank of Greece, issue 55, pages 83-105, July.
    5. Sofia Anyfantaki & Yannis Caloghirou & Konstantinos Dellis & Aikaterini Karadimitropoulou & Filippos Petroulakis, 2022. "Skills, management practices and technology adoption in Greek manufacturing firms," Economic Bulletin, Bank of Greece, issue 55, pages 7-42, July.
    6. Chunling Li & Khansa Pervaiz & Muhammad Asif Khan & Muhammad Atif Khan & Judit Oláh, 2022. "Impact of Sovereign Credit Rating Disclosure on Chinese Financial Market," SAGE Open, , vol. 12(1), pages 21582440221, March.

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    More about this item

    Keywords

    Credit rating agencies; sovereign risk; sovereign rating;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • 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

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