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Procyclicality and path dependence of sovereign credit ratings: The example of Europe

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  • Freitag, L.

    (Macro, International & Labour Economics)

Abstract

This paper investigates empirically the behavior of Credit Rating Agencies (CRAs) when assessing sovereign solvency for European countries. Using Probit regressions I find that even after controlling for macroeconomic factors, CRAs take the business cycle into account. Also, there is a clear case of path dependence in sovereign ratings. Additionally, it turns out that there seems to be a discrepancy between upgrades and downgrades. These results are robust to a number of different specifications.

Suggested Citation

  • Freitag, L., 2014. "Procyclicality and path dependence of sovereign credit ratings: The example of Europe," Research Memorandum 020, Maastricht University, Graduate School of Business and Economics (GSBE).
  • Handle: RePEc:unm:umagsb:2014020
    DOI: 10.26481/umagsb.2014020
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    2. Freitag L., 2014. "Default probabilities, CDS premiums and downgrades : A probit-MIDAS analysis," Research Memorandum 038, Maastricht University, Graduate School of Business and Economics (GSBE).
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    5. Kerem Tuzcuoglu, 2019. "Composite Likelihood Estimation of an Autoregressive Panel Probit Model with Random Effects," Staff Working Papers 19-16, Bank of Canada.

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