Credit Rating Agencies, Finance and Growth
The aim of this chapter is to initiate a reflection about the potential connection between Credit Rating Agencies (CRA) performance and long-run macroeconomic performance based on the idea that inaccurate and volatile rating decisions can hinder the development of the financial system and therefore growth. This reflection is illustrated by means of the analysis of the evolution and correlations between relevant data on financial system development and growth for a sample of countries from the Euro Zone over the period 1990-2010. The preliminary descriptive analysis seems to corroborate the former concern since we found a positive correlation between different indicators of the development of the financial system, respectively, liquid liabilities, domestic credit to the private sector, and stock market capitalization, and real per capita output. The concerns with the economic impact of the functioning and performance of CRA should thus, in our opinion, also take a longer term perspective since they are a pillar of the financial system, which in turn is fundamental to sustain economic growth. Further restructuring and new interventions in the sector are needed in order to increase transparency and efficiency of CRA activity, preventing in this way longer term consequences in terms of growth potential.
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