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Market dynamics associated with credit ratings: a literature review

Author

Listed:
  • González, Fernando
  • Haas, François
  • Johannes, Ronald
  • Persson, Mattias
  • Toledo, Liliana
  • Violi, Roberto
  • Wieland, Martin
  • Zins, Carmen

Abstract

This paper investigates the potential impact of the growing influence of the opinions of credit rating agencies (CRAs) on market dynamics. This impact can be seen as a consequence of the information content of the ratings themselves or indirectly as a consequence of the "hardwiring" of ratings into regulatory rules, management mandates, bond covenants, etc. Rating agencies who strive to provide credit assessments that remain broadly stable through the course of the business cycle have been themselves affected as the growing reliance on rating mean that they are increasingly expected to satisfy a widening range of constituencies with different and sometimes conflicting interests. They have responded to this challenge largely by adding more products to their traditional product palette but also through modifications in the rating process. It is however too early to say whether these changes mean a fundamental shift in their approach to credit risk measurement. JEL Classification: G10, G28, G29

Suggested Citation

  • González, Fernando & Haas, François & Johannes, Ronald & Persson, Mattias & Toledo, Liliana & Violi, Roberto & Wieland, Martin & Zins, Carmen, 2004. "Market dynamics associated with credit ratings: a literature review," Occasional Paper Series 16, European Central Bank.
  • Handle: RePEc:ecb:ecbops:200416
    Note: 338288
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    credit rating agencies; market dynamics; rating methodologies; ratings; rating triggers;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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