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Sovereign Credit Ratings Methodology; An Evaluation

  • Ashok Vir Bhatia
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    This paper describes and evaluates the sovereign credit ratings methodologies of Standard & Poor's, Moody's Investors Service, and Fitch Ratings. A simple definition of ratings failure-based on ratings stability-is proposed and tested, pointing to falling failure rates, consistent upside bias, and strong interagency correlation. Possible causes of ratings failure are separated into informational, analytical, revenue bias, and other incentive problems, each of which is discussed. The paper seeks to highlight methodological developments after the Asian crisis, particularly with regard to the estimation of contingent liabilities and the assessment of international reserves adequacy.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/170.

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    Length: 60
    Date of creation: 01 Oct 2002
    Date of revision:
    Handle: RePEc:imf:imfwpa:02/170
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    1. Nadeem Ul Haque & Manmohan S. Kumar & Nelson Mark & Donald J. Mathieson, 1996. "The Economic Content of Indicators of Developing Country Creditworthiness," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 688-724, December.
    2. Se-Jik Kim & Mark R. Stone, 1999. "Corporate Leverage, Bankruptcy, and Output Adjustment in Post-Crisis East Asia," IMF Working Papers 99/143, International Monetary Fund.
    3. Mark R. Stone, 2000. "The Corporate Sector Dynamics of Systemic Financial Crises," IMF Working Papers 00/114, International Monetary Fund.
    4. Catherine A. Pattillo & Andrew Berg & Gian-Maria Milesi-Ferretti & Eduardo Borensztein, 2000. "Anticipating Balance of Payments Crises; The Role of Early Warning Systems," IMF Occasional Papers 186, International Monetary Fund.
    5. Roberto Perrelli & Christian B. Mulder, 2001. "Foreign Currency Credit Ratings for Emerging Market Economies," IMF Working Papers 01/191, International Monetary Fund.
    6. R. B. Johnston & Liliana Schumacher & Jingqing Chai, 2000. "Assessing Financial System Vulnerabilities," IMF Working Papers 00/76, International Monetary Fund.
    7. Kalpana Kochhar & Prakash Loungani & Mark R. Stone, 1998. "The East Asian Crisis; Macroeconomic Developments and Policy Lessons," IMF Working Papers 98/128, International Monetary Fund.
    8. John Ammer & Frank Packer, 2000. "How consistent are credit ratings? a geographic and sectoral analysis of default risk," International Finance Discussion Papers 668, Board of Governors of the Federal Reserve System (U.S.).
    9. Andrew Berg, 1999. "The Asia Crisis; Causes, Policy Responses and Outcomes," IMF Working Papers 99/138, International Monetary Fund.
    10. Roman Kraeussl, 2000. "Sovereign Ratings and Their Impact on Recent Financial Crises," Working Papers 0002, University of Crete, Department of Economics.
    11. Helmut Reisen & Julia von Maltzan, 1999. "Boom and Bust and Sovereign Ratings," OECD Development Centre Working Papers 148, OECD Publishing.
    12. Sy, Amadou N. R., 2002. "Emerging market bond spreads and sovereign credit ratings: reconciling market views with economic fundamentals," Emerging Markets Review, Elsevier, vol. 3(4), pages 380-408, December.
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