Credit Ratings and Debt Crises
This paper analyses the role of credit rating agencies in sovereign debt crises. Using a panel of 53 emerging and developing countries with annual data going back to 1977, the paper shows that credit ratings are not very good predictors of debt distress events once tested against a simple benchmark model with standard macroeconomic variables. Next, the paper turns to higher frequency data for a subset of countries to analyze the link between credit ratings and bond spreads. The results indicate that bond spreads react strongly to credit ratings, especially to downgrades in the non-investment grade category. The results are robust to a variety of additional tests.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS|
Web page: http://www.banque-france.fr/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Carmen M. Reinhart, 2002. "Default, Currency Crises and Sovereign Credit Ratings," NBER Working Papers 8738, National Bureau of Economic Research, Inc.
- Reinhart, Carmen, 2002. "Default, currency crises, and sovereign credit ratings," MPRA Paper 13917, University Library of Munich, Germany.
- Helmut Reisen & Julia von Maltzan, 1999.
"Boom and Bust and Sovereign Ratings,"
OECD Development Centre Working Papers
148, OECD Publishing.
- G. Ferri & L.-G. Liu & J. E. Stiglitz, 1999. "The Procyclical Role of Rating Agencies: Evidence from the East Asian Crisis," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 28(3), pages 335-355, November.
- António Afonso, 2002. "Understanding the Determinants of Government Debt Ratings: Evidence for the Two Leading Agencies," Working Papers Department of Economics 2002/02, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
- Reinhart, Carmen, 2002. "Sovereign Credit Ratings Before and After Financial Crises," MPRA Paper 7410, University Library of Munich, Germany.
- Manuel Arellano & Stephen Bond, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Oxford University Press, vol. 58(2), pages 277-297.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Alsakka, Rasha & ap Gwilym, Owain, 2010. "Leads and lags in sovereign credit ratings," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2614-2626, November.
- Amadou N. R. Sy, 2003.
"Rating the Rating Agencies; Anticipating Currency Crises or Debt Crises?,"
IMF Working Papers
03/122, International Monetary Fund.
- Sy, Amadou N.R., 2004. "Rating the rating agencies: Anticipating currency crises or debt crises?," Journal of Banking & Finance, Elsevier, vol. 28(11), pages 2845-2867, November.
- Mark A. Carlson & Galina B. Hale, 2005.
"Courage to Capital? A Model of the Effects of Rating Agencies on Sovereign Debt Role-over,"
Cowles Foundation Discussion Papers
1506, Cowles Foundation for Research in Economics, Yale University.
- Opp, Christian C. & Opp, Marcus M. & Harris, Milton, 2013. "Rating agencies in the face of regulation," Journal of Financial Economics, Elsevier, vol. 108(1), pages 46-61.
- Bar-Isaac, Heski & Shapiro, Joel, 2010.
"Ratings Quality over the Business Cycle,"
CEPR Discussion Papers
8156, C.E.P.R. Discussion Papers.
- Martín González Rozada & Eduardo Levy Yeyati, 2006.
"Global Factors and Emerging Market Spreads,"
Research Department Publications
4445, Inter-American Development Bank, Research Department.
- Martín González Rozada & Eduardo Levy Yeyati, 2006. "Global Factors and Emerging Market Spreads," IDB Publications (Working Papers) 6703, Inter-American Development Bank.
- Eduardo Levy Yeyati & Martín González Rozada, 2005. "Global Factors and Emerging Market Spreads," Business School Working Papers globalfactorsspreads, Universidad Torcuato Di Tella.
- Reinhart, Carmen & Goldstein, Morris & Kaminsky, Graciela, 2000. "Assessing financial vulnerability, an early warning system for emerging markets: Introduction," MPRA Paper 13629, University Library of Munich, Germany.
- Chiţu, Livia, 2012. "Was unofficial dollarisation/euroisation an amplifier of the 'Great Recession' of 2007-09 in emerging economies," Working Paper Series 1473, European Central Bank.
- Guillermo Larraín & Helmut Reisen & Julia von Maltzan, 1997.
"Emerging Market Risk and Sovereign Credit Ratings,"
OECD Development Centre Working Papers
124, OECD Publishing.
- Reisen, Helmut & Von Maltzan, Julia & Larraín, Guillermo, 1998. "Emerging market risk and sovereign credit ratings," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34380, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
- Aitor Erce, 2012. "Selective sovereign defaults," Globalization and Monetary Policy Institute Working Paper 127, Federal Reserve Bank of Dallas.
- Eduardo Borensztein & Patricio Valenzuela & Kevin Cowan, 2007. "Sovereign Ceilings â€œLiteâ€ ? The Impact of Sovereign Ratings on Corporate Ratings in Emerging Market Economies," IMF Working Papers 07/75, International Monetary Fund.
- Marc Flandreau & Norbert Gaillard & Frank Packer, 2010. "To err is human: rating agencies and the interwar foreign government debt crisis," BIS Working Papers 335, Bank for International Settlements.
When requesting a correction, please mention this item's handle: RePEc:bfr:banfra:396. 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: (Michael brassart)
If references are entirely missing, you can add them using this form.