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Sovereign ratings and their impact on recent financial crises

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  • Roman Kräussl

Abstract

This paper discusses the role of 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 ratings are responsible for pronounced boom-bust cycles in emerging-markets lending. Using a VAR system this paper examines how US dollar bond yield spreads and international liquidity react to an unexpected sovereign rating change. Contrary to common belief and previous studies, the empirical results suggest that an abrupt downgrade does not necessarily intensify financial crises.
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  • Roman Kräussl, 2001. "Sovereign ratings and their impact on recent financial crises," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 7(2), pages 268-269, May.
  • Handle: RePEc:kap:iaecre:v:7:y:2001:i:2:p:268-269:10.1007/bf02296020
    DOI: 10.1007/BF02296020
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    References listed on IDEAS

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    1. Mr. Andrew Berg, 1999. "The Asia Crisis: Causes, Policy Responses, and Outcomes," IMF Working Papers 1999/138, International Monetary Fund.
    2. Robert Jarrow, 2017. "Credit Risk," World Scientific Book Chapters, in: THE ECONOMIC FOUNDATIONS OF RISK MANAGEMENT Theory, Practice, and Applications, chapter 6, pages 53-58, World Scientific Publishing Co. Pte. Ltd..
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    5. Reisen, Helmut & von Maltzan, Julia, 1999. "Boom and Bust and Sovereign Ratings," International Finance, Wiley Blackwell, vol. 2(2), pages 273-293, July.
    6. 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.
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    8. Helmut Reisen & Julia Von Maltzan, 1999. "Boom and Bust and Sovereign Ratings," International Finance, Wiley Blackwell, vol. 2(2), pages 273-293, July.
    9. Richard Cantor & Frank Packer, 1996. "Determinants and impact of sovereign credit ratings," Economic Policy Review, Federal Reserve Bank of New York, vol. 2(Oct), pages 37-53.
    10. Mr. Anthony J. Richards & Mr. David Deddouche, 1999. "Bank Rating Changes and Bank Stock Returns—Puzzling Evidence from the Emerging Markets," IMF Working Papers 1999/151, International Monetary Fund.
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    Cited by:

    1. Mr. Ashok Vir Bhatia, 2002. "Sovereign Credit Ratings Methodology: An Evaluation," IMF Working Papers 2002/170, International Monetary Fund.
    2. Oshiro, Naoto & Saruwatari, Yasufumi, 2005. "Quantification of sovereign risk: Using the information in equity market prices," Emerging Markets Review, Elsevier, vol. 6(4), pages 346-362, December.
    3. Li, Huimin & Jeon, Bang Nam & Cho, Seong-Yeon & Chiang, Thomas C., 2008. "The impact of sovereign rating changes and financial contagion on stock market returns: Evidence from five Asian countries," Global Finance Journal, Elsevier, vol. 19(1), pages 46-55.

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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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