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Rating Government Bonds: Can We Raise Our Grade?

Listed author(s):
  • Marc D. Joffe

Yields on sovereign and municipal bonds are largely determined by perceptions of default risk. The traditional providers of default risk assessments are the credit rating agencies, which have of late suffered damaged reputations. The author, a former Senior Director at Moody’s Analytics, argues that rating agency assessments of government bonds suffer from a failure to use modern social science research methods. He contends that economists and other academics are better suited to the task of estimating the likelihood of government bond defaults. Economists can provide an alternative source of analysis by collecting and analyzing time series of fiscal data and building simulations of future revenues and expenditures. To encourage more academics to enter this field, the author is contributing historical data and an open-source simulation platform.

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Article provided by Econ Journal Watch in its journal Econ Journal Watch.

Volume (Year): 9 (2012)
Issue (Month): 3 (September)
Pages: 350-365

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Handle: RePEc:ejw:journl:v:9:y:2012:i:3:p:350-365
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  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters,in: This Time Is Different: Eight Centuries of Financial Folly Princeton University Press.
  2. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Working Papers 111, Princeton University, Department of Economics, Center for Economic Policy Studies..
  3. Keim, Donald B. & Stambaugh, Robert F., 1986. "Predicting returns in the stock and bond markets," Journal of Financial Economics, Elsevier, vol. 17(2), pages 357-390, December.
  4. Reinhart, Karmen & Rogoff, Kenneth, 2009. ""This time is different": panorama of eight centuries of financial crises," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 77-114, March.
  5. repec:pri:cepsud:91malkiel is not listed on IDEAS
  6. Francis A. Longstaff & Jun Pan & Lasse H. Pedersen & Kenneth J. Singleton, 2011. "How Sovereign Is Sovereign Credit Risk?," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(2), pages 75-103, April.
  7. Jens Hilscher & Yves Nosbusch, 2010. "Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt," Review of Finance, European Finance Association, vol. 14(2), pages 235-262.
  8. Eli M Remolona & Michela Scatigna & Eliza Wu, 2007. "Interpreting sovereign spreads," BIS Quarterly Review, Bank for International Settlements, March.
  9. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
  10. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 59-82, Winter.
  11. Lawrence E. Harris & Michael S. Piwowar, 2006. "Secondary Trading Costs in the Municipal Bond Market," Journal of Finance, American Finance Association, vol. 61(3), pages 1361-1397, 06.
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