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Sovereign Credit Ratings and Their Impact on Recent Financial Crises

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Author Info

  • Roman Kraeussl

    (Center for Financial Studies, Frankfurt/Main)

Abstract

This paper discusses the role of the credit rating agencies during the recent financial crises. In particular, it examines whether the agencies can add to the dynamics of emerging market crises. Academics and investors often argue that sovereign credit ratings are responsible for pronounced boom-bust cycles in emerging markets lending. Using a vector autoregressive system this paper examines how US dollar bond yield spreads and the short-term international liquidity position react to an unexpected sovereign credit rating change. Contrary to common belief and previous studies, the empirical results suggest that an abrupt downgrade does not necessarily intensify a financial crisis.

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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0311013.

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Length: 24 pages
Date of creation: 25 Nov 2003
Date of revision:
Handle: RePEc:wpa:wuwpif:0311013

Note: Type of Document - ; pages: 24
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Web page: http://128.118.178.162

Related research

Keywords: Sovereign Risk; Boom-Bust-Cycles; Financial Crises; VAR System;

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References

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  1. Kaminsky, Graciela L. & Schmukler, Sergio L., 1999. "What triggers market jitters?: A chronicle of the Asian crisis," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 537-560, August.
  2. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
  3. Helmut Reisen & Julia von Maltzan, 1999. "Boom and Bust and Sovereign Ratings," OECD Development Centre Working Papers 148, OECD Publishing.
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Citations

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Cited by:
  1. Siem Jan Koopman & Roman Kraeussl & Andre Lucas & Andre Monteiro, 2006. "Credit Cycles and Macro Fundamentals," Tinbergen Institute Discussion Papers 06-023/2, Tinbergen Institute.
  2. Galina Hale, 2005. "Courage to Capital? A Model of the Effects of Rating Agencies on Sovereign Debt Roll–over," The Institute for International Integration Studies Discussion Paper Series iiisdp062, IIIS.
  3. Sánchez, Elmer, 2013. "Grado de inversión y flujos de inversión directa extranjera a economías emergentes," Working Papers 2013-010, Banco Central de Reserva del Perú.

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