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Rating the rating agencies: Anticipating currency crises or debt crises?

  • Sy, Amadou N.R.

In contrast to the early-warning system literature, we find that currency and debt crises are not closely linked in emerging markets. We find that after 1994, credit ratings predict debt crises but fail to anticipate currency crises. When debt crises are defined as sovereign distress-when spreads are higher than 1,000 basis points-we find that countries experience reduced capital market access and high interest rates on their external debt for typically more than two quarters. We also find that lagged ratings and ratings changes, including negative outlooks and credit watches, anticipate such debt crises.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 28 (2004)
Issue (Month): 11 (November)
Pages: 2845-2867

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Handle: RePEc:eee:jbfina:v:28:y:2004:i:11:p:2845-2867
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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  1. Reinhart, Carmen, 2002. "Default, currency crises, and sovereign credit ratings," MPRA Paper 13917, University Library of Munich, Germany.
  2. International Monetary Fund, 1996. "The Economic Content of Indicators of Developing Country Creditworthiness," IMF Working Papers 96/9, International Monetary Fund.
  3. Hu, Yen-Ting & Kiesel, Rudiger & Perraudin, William, 2002. "The estimation of transition matrices for sovereign credit ratings," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1383-1406, July.
  4. Marcel Peter, 2002. "Estimating Default Probabilities of Emerging Market Sovereigns: A New Look at a Not-So-New Literature," IHEID Working Papers 06-2002, Economics Section, The Graduate Institute of International Studies.
  5. Richard Cantor & Frank Packer, 1996. "Determinants and impacts of sovereign credit ratings," Research Paper 9608, Federal Reserve Bank of New York.
  6. 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.
  7. Merrick Jr., John J., 2001. "Crisis dynamics of implied default recovery ratios: Evidence from Russia and Argentina," Journal of Banking & Finance, Elsevier, vol. 25(10), pages 1921-1939, October.
  8. Reinhart, Carmen & Goldstein, Morris & Kaminsky, Graciela, 2000. "Assessing financial vulnerability, an early warning system for emerging markets: Introduction," MPRA Paper 13629, University Library of Munich, Germany.
  9. Catherine A. Pattillo & Andrew Berg, 1998. "Are Currency Crises Predictable? a Test," IMF Working Papers 98/154, International Monetary Fund.
  10. Ashok Vir Bhatia, 2002. "Sovereign Credit Ratings Methodology; An Evaluation," IMF Working Papers 02/170, International Monetary Fund.
  11. Amadou N. R. Sy & Andrea Pescatori, 2004. "Debt Crises and the Development of International Capital Markets," IMF Working Papers 04/44, International Monetary Fund.
  12. Christian B. Mulder & Brieuc Monfort, 2000. "Using Credit Ratings for Capital Requirementson Lending to Emerging Market Economies; Possible Impact of a New Basel Accord," IMF Working Papers 00/69, International Monetary Fund.
  13. Enrica Detragiache & Antonio Spilimbergo, 2001. "Crises and Liquidity; Evidence and Interpretation," IMF Working Papers 01/2, International Monetary Fund.
  14. Axel Schimmelpfennig & Nouriel Roubini & Paolo Manasse, 2003. "Predicting Sovereign Debt Crises," IMF Working Papers 03/221, International Monetary Fund.
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