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Understanding sovereign rating movements in euro area countries

Author

Listed:
  • Pierluigi, Beatrice
  • Brůha, Jan
  • Setzer, Ralph
  • Karber, Moritz

Abstract

This paper investigates the link between sovereign ratings and macroeconomic fundamentals for a group of euro area countries which recorded rating downgrades amid the euro area sovereign debt crisis. We apply an elaborated econometric estimation technique, based on a Bayesian ordered probit model, to understand how the decisions of rating agencies can be explained by economic developments. The estimated model re-produces historical ratings by using a small number of economic and institutional variables, which seem to effectively summarize the large number of criteria used by Moody JEL Classification: C25, G24, H63, H68

Suggested Citation

  • Pierluigi, Beatrice & Brůha, Jan & Setzer, Ralph & Karber, Moritz, 2017. "Understanding sovereign rating movements in euro area countries," Working Paper Series 2011, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20172011
    Note: 591179
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp2011.en.pdf
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    References listed on IDEAS

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    Cited by:

    1. Dumitriu, Ramona & Stefanescu, Răzvan, 2020. "Iluzii financiare, Partea întâi [Financial Illusions, Part 1]," MPRA Paper 101201, University Library of Munich, Germany, revised 17 Jun 2020.
    2. Metodij Hadzi-Vaskov & Mr. Luca A Ricci, 2019. "The Nonlinear Relationship Between Public Debt and Sovereign Credit Ratings," IMF Working Papers 2019/162, International Monetary Fund.
    3. Gábor Hajnal & Nóra Szûcs, 2018. "The Transparency of Credit Ratings – Reconstruction of Hungary’s Sovereign Rating," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 17(3), pages 29-56.
    4. Hantzsche, Arno, 2022. "Fiscal uncertainty and sovereign credit risk," European Economic Review, Elsevier, vol. 148(C).
    5. Agnello, Luca & Castro, Vítor & Sousa, Ricardo M., 2021. "On the duration of sovereign ratings cycle phases," Journal of Economic Behavior & Organization, Elsevier, vol. 182(C), pages 512-526.

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    More about this item

    Keywords

    euro area crisis; panel probit model; sovereign debt; sovereign rating;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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