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Sovereign Ratings and Their Impact on Recent Financial Crises

  • Roman Kraeussl

    (Center for Financial Studies, Frankfurt am Main, Germany)

This paper discusses the role of credit rating agencies during the recent financial crises. In particular, it examines whether the agencies can add to the dynamics of emerging market crises. Academics and investors often argue that sovereign ratings are responsible for pronounced boom-bust cycles in emerging-markets lending. Using a VAR system this paper examines how US dollar bond yield spreads and international liquidity react to an unexpected sovereign rating change. Contrary to common belief and previous studies, the empirical results suggest that an abrupt downgrade does not necessarily intensify financial crises.

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File URL: http://economics.soc.uoc.gr/wpa/docs/CFS-WP1.pdf
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Paper provided by University of Crete, Department of Economics in its series Working Papers with number 0002.

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Length: 25 pages
Date of creation: 00 Feb 2000
Date of revision:
Handle: RePEc:crt:wpaper:0002
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  1. Anthony J. Richards & David Deddouche, 1999. "Bank Rating Changes and Bank Stock Returns; Puzzling Evidence From the Emerging Markets," IMF Working Papers 99/151, International Monetary Fund.
  2. Andrew Berg, 1999. "The Asia Crisis; Causes, Policy Responses and Outcomes," IMF Working Papers 99/138, International Monetary Fund.
  3. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
  4. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc.
  5. Helmut Reisen & Julia von Maltzan, 1999. "Boom and Bust and Sovereign Ratings," OECD Development Centre Working Papers 148, OECD Publishing.
  6. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  7. Graciela L. Kaminsky & Sergio L. Schmukler, 1999. "What triggers market jitters: a chronicle of the Asian crisis," International Finance Discussion Papers 634, Board of Governors of the Federal Reserve System (U.S.).
  8. Richard Cantor & Frank Packer, 1996. "Determinants and impacts of sovereign credit ratings," Research Paper 9608, Federal Reserve Bank of New York.
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