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Understanding the determinants of sovereign debt ratings: Evidence for the two leading agencies

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  • Antonio Afonso

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Abstract

An analysis of the possible determinants of sovereign credit ratings assigned by the two leading credit rating agencies, Moody's and Standard and Poor's, is conducted in this paper by using linear, logistic, and exponential transformations of the rating scales. Of the large number of variables that can be used, the set of explanatory variables selected in this study is significant in explaining the credit ratings. Namely, six variables appear to be the most relevant to determining a country's credit rating: GDP per capita, external debt, level of economic development, default history, real growth rate, and inflation rate. Copyright Academy of Economics and Finance 2003

Suggested Citation

  • Antonio Afonso, 2003. "Understanding the determinants of sovereign debt ratings: Evidence for the two leading agencies," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 27(1), pages 56-74, March.
  • Handle: RePEc:spr:jecfin:v:27:y:2003:i:1:p:56-74
    DOI: 10.1007/BF02751590
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    References listed on IDEAS

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    1. Sebastian Edwards, 1983. "LDC's Foreign Borrowing and Default Risk: An Empirical Investigation," NBER Working Papers 1172, National Bureau of Economic Research, Inc.
    2. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, November.
    3. Jean-Claude Cosset & Jean Roy, 1991. "The Determinants of Country Risk Ratings," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 22(1), pages 135-142, March.
    4. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
    5. Bennett W Sutton & Luis Catão, 2002. "Sovereign Defaults; The Role of Volatility," IMF Working Papers 02/149, International Monetary Fund.
    6. Edwards, Sebastian, 1984. "LDC Foreign Borrowing and Default Risk: An Empirical Investigation, 1976-80," American Economic Review, American Economic Association, vol. 74(4), pages 726-734, September.
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