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Output spillovers from changes in sovereign credit ratings

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  • Chen, Sheng-Syan
  • Chen, Hsien-Yi
  • Yang, Shu-Ling
  • Chang, Chong-Chuo

Abstract

This research examines how a sovereign rating revision of one country influences the economic growth rates of other countries. Rating revisions have significant output spillover effects: A one-notch upgrade (downgrade) prompts on average a significant downward revision of about 0.03% (0.07%) in the consensus forecast of annual economic growth rates of other countries in the two-month period after the event. The spillovers are transmitted through direct and indirect trade and financial linkages between event and non-event countries. The evidence indicates that a predominance of differential (common) spillovers leads upgrades (downgrades) to produce adverse output effects for other countries.

Suggested Citation

  • Chen, Sheng-Syan & Chen, Hsien-Yi & Yang, Shu-Ling & Chang, Chong-Chuo, 2016. "Output spillovers from changes in sovereign credit ratings," Journal of International Money and Finance, Elsevier, vol. 63(C), pages 48-63.
    • Handle: RePEc:eee:jimfin:v:63:y:2016:i:c:p:48-63
    DOI: 10.1016/j.jimonfin.2016.01.007
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    4. Samargandi, Nahla & Kutan, Ali M., 2016. "Private credit spillovers and economic growth: Evidence from BRICS countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 44(C), pages 56-84.

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    More about this item

    Keywords

    Sovereign credit rating revision; Output spillover; Economic growth;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • 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
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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