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Sovereign Credit Ratings and Their Impact on Recent Financial Crises

  • Roman Kraeussl

    (Center for Financial Studies, Frankfurt/Main)

This paper discusses the role of the credit rating agencies during the recent financial crises. In particular, it examines whether the agencies can add to the dynamics of emerging market crises. Academics and investors often argue that sovereign credit ratings are responsible for pronounced boom-bust cycles in emerging markets lending. Using a vector autoregressive system this paper examines how US dollar bond yield spreads and the short-term international liquidity position react to an unexpected sovereign credit rating change. Contrary to common belief and previous studies, the empirical results suggest that an abrupt downgrade does not necessarily intensify a financial crisis.

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Paper provided by EconWPA in its series International Finance with number 0311013.

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Length: 24 pages
Date of creation: 25 Nov 2003
Date of revision:
Handle: RePEc:wpa:wuwpif:0311013
Note: Type of Document - ; pages: 24
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Helmut Reisen & Julia von Maltzan, 1999. "Boom and Bust and Sovereign Ratings," OECD Development Centre Working Papers 148, OECD Publishing.
  2. Kaminsky, Graciela L. & Schmukler, Sergio L., 1999. "What triggers market jitters? A chronicle of the Asian crisis," Policy Research Working Paper Series 2094, The World Bank.
  3. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
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