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Foreign Currency Credit Ratings for Emerging Market Economies

  • Roberto Perrelli
  • Christian B. Mulder

This paper examines how ratings for emerging market economies have been set. Given the high degree of autocorrelation in ratings, we use estimators that yield consistent parameters in the presence of such correlation. The results show that rating changes for emerging market economies have been dominated by variables different from those suggested by the literature. We also conclude that some deterioration in the ratings was warranted during the recent crisis episodes in view of the behavior of economic fundamentals, but that the agencies overreacted for several key countries. We find evidence of a structural break: since the Asian crisis period, ratings have been influenced by reserves in relation to short-term debt.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/191.

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Length: 23
Date of creation: 01 Dec 2001
Date of revision:
Handle: RePEc:imf:imfwpa:01/191
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  1. Richard Cantor & Frank Packer, 1996. "Determinants and impacts of sovereign credit ratings," Research Paper 9608, Federal Reserve Bank of New York.
  2. Pamela Nickell & William Perraudin & Simone Varotto, 2001. "Stability of ratings transitions," Bank of England working papers 133, Bank of England.
  3. Taimur Baig & Ilan Goldfajn, 1999. "Financial Market Contagion in the Asian Crisis," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 3.
  4. 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.
  5. Christian B. Mulder & Brieuc Monfort, 2000. "Using Credit Ratings for Capital Requirementson Lending to Emerging Market Economies; Possible Impact of a New Basel Accord," IMF Working Papers 00/69, International Monetary Fund.
  6. Sebastian Edwards, 1983. "LDC's Foreign Borrowing and Default Risk: An Empirical Investigation," NBER Working Papers 1172, National Bureau of Economic Research, Inc.
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