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Sovereign ratings and their asymmetric response to fundamentals

Author

Listed:
  • Carmen Broto

    () (Banco de España)

  • Luis Molina

    () (Banco de España)

Abstract

Changes in sovereign ratings are strongly asymmetric, as downgrades tend to be deeper and faster than upgrades. In other words, once a country loses its initial status it takes a long time to recover it. Using S&P data, we characterise “rating cycles” in terms of their duration and amplitude. We then study whether the agency reaction to new economic and financial domestic information also differs during upgrade and downgrade phases. Our results indicate that favourable fundamentals could be helpful for smoothing and slowing down the path of downgrades, whereas favourable fundamentals do not seem to accelerate the rating recovery.

Suggested Citation

  • Carmen Broto & Luis Molina, 2014. "Sovereign ratings and their asymmetric response to fundamentals," Working Papers 1428, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:1428
    as

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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. L’asymétrique réponse des notations souveraines aux fondamentaux
      by ? in D'un champ l'autre on 2014-12-14 23:57:00

    Citations

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    Cited by:

    1. Gabriel Caldas Montes & Diego S. P. Oliveira & Helder Ferreira Mendonça, 2016. "Sovereign Credit Ratings in Developing Economies: New Empirical Assessment," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 21(4), pages 382-397, October.
    2. repec:oup:oxecpp:v:70:y:2018:i:2:p:563-585. is not listed on IDEAS
    3. Marta Gómez-Puig & Simón Sosvilla-Rivero & Manish K. Singh, 2018. "“Incorporating creditors' seniority into contingent claim models:Application to peripheral euro area countries”," IREA Working Papers 201803, University of Barcelona, Research Institute of Applied Economics, revised Feb 2018.
    4. Iván Kataryniuk & Javier Vallés, 2018. "Fiscal consolidation after the Great Recession: the role of composition," Oxford Economic Papers, Oxford University Press, vol. 70(2), pages 563-585.

    More about this item

    Keywords

    sovereign credit ratings; rating cycle; emerging countries; panel data model.;

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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