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Procyclicality and Path Dependence of Sovereign Credit Ratings: The Example of Europe

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  • Lennart Freitag

Abstract

type="main" xml:lang="en"> This paper investigates empirically the behavior of Credit Rating Agencies (CRAs) when assessing sovereign solvency for European countries. Using probit regressions, I find that even after controlling for macroeconomic factors, CRAs take the business cycle into account. Also, there is a clear case of path dependence in sovereign ratings. Additionally, it turns out that there seems to be a discrepancy between upgrades and downgrades. These results are robust to a number of different specifications.

Suggested Citation

  • Lennart Freitag, 2015. "Procyclicality and Path Dependence of Sovereign Credit Ratings: The Example of Europe," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 44(2), pages 309-332, July.
    • Handle: RePEc:bla:ecnote:v:44:y:2015:i:2:p:309-332
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    Cited by:

    1. Ozturk, Huseyin & Namli, Ersin & Erdal, Halil Ibrahim, 2016. "Modelling sovereign credit ratings: The accuracy of models in a heterogeneous sample," Economic Modelling, Elsevier, vol. 54(C), pages 469-478.
    2. Freitag L., 2014. "Default probabilities, CDS premiums and downgrades : A probit-MIDAS analysis," Research Memorandum 038, Maastricht University, Graduate School of Business and Economics (GSBE).
    3. Patrycja Chodnicka Jaworska, "undated". "Prediction Of Banking Sector Condition," Review of Socio - Economic Perspectives 201703, Reviewsep.
    4. Kerem Tuzcuoglu, 2019. "Composite Likelihood Estimation of an Autoregressive Panel Probit Model with Random Effects," Staff Working Papers 19-16, Bank of Canada.
    5. Elif Guneren Genc & Ozlem Deniz Basar, 2019. "Comparison of Country Ratings of Credit Rating Agencies with MOORA Method," Business and Economics Research Journal, Bursa Uludag University, Faculty of Economics and Administrative Sciences, vol. 10(2), pages 391-404.

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