IDEAS home Printed from https://ideas.repec.org/a/oup/wbecrv/v16y2002i2p149-150.html
   My bibliography  Save this article

An Introduction

Author

Listed:
  • Carmen M. Reinhart

Abstract

This paper has addressed the following questions: Do sovereign credit ratings systematically help predict currency and banking crises? If not, why not? What needs to change? What is the behavior of credit ratings following the crises? Are there important differences in the behavior of credit ratings between developed and emerging markets? The answers revealed by the analysis can be summarized as follows: As to the ability of rating changes to anticipate financial crises, the empirical tests presented here on sovereign credit ratings and financial crises suggest that sovereign credit ratings systematically fail to anticipate banking and currency crises. This result appears to be robust across alternative crises definitions, model specification, and approaches. Only for the Institutional Investor ratings is there some (weak) evidence that downgrades precede currency crises. In none of the cases are banking crises systematically preceded by downgrades. As regards the behavior of ratings after the crisis and differences between developed and emerging markets, there is evidence that sovereign credit ratings tend to be reactive--particularly when it comes to EMs. Both the probability of a downgrade and the magnitude of the downgrade are significantly higher for EMs. Taken together, these findings point to a procyclicality in the ratings. In a related paper (Calvo and Reinhart, 2000), also ask how these differences between developed and emerging markets in access to international capital markets influence the outcomes of a currency crisis--particularly as regards output. They present evidence that EMs are, indeed, very different from developed economies in several key dimensions. In EMs devaluations, or large depreciations for that matter, are contractionary, the adjustments in the current account are far more acute and abrupt. Hence, currency crises become credit crises as sovereign credit ratings often collapse following the currency collapse and access to international
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Carmen M. Reinhart, 2002. "An Introduction," World Bank Economic Review, World Bank Group, vol. 16(2), pages 149-150, August.
  • Handle: RePEc:oup:wbecrv:v:16:y:2002:i:2:p:149-150
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Thomas R. Atkinson, 1967. "Trends in Corporate Bond Quality," NBER Books, National Bureau of Economic Research, Inc, number atki67-1.
    2. Kaminsky,Graciela & Lyons,Richard K. & Schmukler,Sergio L., 2001. "Mutual fund investment in emerging markets - an overview," Policy Research Working Paper Series 2529, The World Bank.
    3. Veronica Balzarotti & Michael Falkenheim & Andrew Powell, 2002. "On the Use of Portfolio Risk Models and Capital Requirements in Emerging Markets: The Case of Argentina," World Bank Economic Review, World Bank Group, vol. 16(2), pages 197-212, August.
    4. Carmen M. Reinhart, 2002. "Default, Currency Crises, and Sovereign Credit Ratings," World Bank Economic Review, World Bank Group, vol. 16(2), pages 151-170, August.
    5. W. Braddock Hickman, 1958. "Corporate Bond Quality and Investor Experience," NBER Books, National Bureau of Economic Research, Inc, number hick58-1.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Giesecke, Kay & Longstaff, Francis A. & Schaefer, Stephen & Strebulaev, Ilya, 2011. "Corporate bond default risk: A 150-year perspective," Journal of Financial Economics, Elsevier, vol. 102(2), pages 233-250.
    2. Lizarazo, Sandra Valentina, 2013. "Default risk and risk averse international investors," Journal of International Economics, Elsevier, vol. 89(2), pages 317-330.
    3. Giesecke, Kay & Longstaff, Francis A. & Schaefer, Stephen & Strebulaev, Ilya A., 2014. "Macroeconomic effects of corporate default crisis: A long-term perspective," Journal of Financial Economics, Elsevier, vol. 111(2), pages 297-310.
    4. Robin Greenwood & Samuel G. Hanson, 2011. "Issuer Quality and the Credit Cycle," NBER Working Papers 17197, National Bureau of Economic Research, Inc.
    5. Kay Giesecke & Francis A. Longstaff & Stephen Schaefer & Ilya Strebulaev, 2012. "Macroeconomic Effects of Corporate Default Crises: A Long-Term Perspective," NBER Working Papers 17854, National Bureau of Economic Research, Inc.
    6. Frankfurter, George M. & McGoun, Elton G., 2002. "Resistance is futile: the assimilation of behavioral finance," Journal of Economic Behavior & Organization, Elsevier, vol. 48(4), pages 375-389, August.
    7. Jovanovic, Boyan & Rousseau, Peter L., 2005. "General Purpose Technologies," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 18, pages 1181-1224, Elsevier.
    8. Flandreau, Marc & Gaillard, Norbert & Packer, Frank, 2009. "Ratings Performance, Regulation and the Great Depression: Lessons from Foreign Government Securities," CEPR Discussion Papers 7328, C.E.P.R. Discussion Papers.
    9. Nicolas Melissas, 2009. "On Bid Disclosure in OCS Wildcat Auctions," Working Papers 0905, Centro de Investigacion Economica, ITAM.
    10. Kay Giesecke & Francis A. Longstaff & Stephen Schaefer & Ilya Strebulaev, 2010. "Corporate Bond Default Risk: A 150-Year Perspective," NBER Working Papers 15848, National Bureau of Economic Research, Inc.
    11. Radovan Vadovic, 2009. "Early, Late, and Multiple Bidding in Internet Auctions," Working Papers 0904, Centro de Investigacion Economica, ITAM.
    12. John Lintner, 1972. "Finance and Capital Markets," NBER Chapters, in: Economic Research: Retrospect and Prospect, Volume 2, Finance and Capital Markets, pages 1-53, National Bureau of Economic Research, Inc.
    13. Sandra Lizarazo & Jose Maria Da-Rocha, 2009. "Money, Credit and Default," Working Papers 0908, Centro de Investigacion Economica, ITAM.
    14. Oya Celasun & Philipp Harms, 2011. "Boon Or Burden? The Effect Of Private Sector Debt On The Risk Of Sovereign Default In Developing Countries," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 70-88, January.
    15. Balima, Wenéyam Hippolyte & Combes, Jean-Louis & Minea, Alexandru, 2017. "Sovereign debt risk in emerging market economies: Does inflation targeting adoption make any difference?," Journal of International Money and Finance, Elsevier, vol. 70(C), pages 360-377.
    16. Samir Jahjah & Bin Wei & Vivian Zhanwei Yue, 2013. "Exchange Rate Policy and Sovereign Bond Spreads in Developing Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(7), pages 1275-1300, October.
    17. Ghosh, Atish R. & Qureshi, Mahvash S. & Kim, Jun Il & Zalduendo, Juan, 2014. "Surges," Journal of International Economics, Elsevier, vol. 92(2), pages 266-285.
      • Mr. Juan Zalduendo & Mr. Jun I Kim & Miss Mahvash S Qureshi & Mr. Atish R. Ghosh, 2012. "Surges," IMF Working Papers 2012/022, International Monetary Fund.
    18. Sebnem Kalemli-Ozcan & Elias Papaioannou & José-Luis Peydró, 2013. "Financial Regulation, Financial Globalization, and the Synchronization of Economic Activity," Journal of Finance, American Finance Association, vol. 68(3), pages 1179-1228, June.
    19. Furceri, Davide & Zdzienicka, Aleksandra, 2012. "How costly are debt crises?," Journal of International Money and Finance, Elsevier, vol. 31(4), pages 726-742.
    20. Abdulkerim Karaaslan & Kürşat Özgür Özden, 2017. "Forecasting Turkey’s Credit Ratings with Multivariate Grey Model and Grey Relational Analysis," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 15(3), pages 583-610, September.

    More about this item

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • F30 - International Economics - - International Finance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:wbecrv:v:16:y:2002:i:2:p:149-150. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/wrldbus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/wrldbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.