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Public Debt & Sovereign Ratings - Do Industrialized Countries Enjoy a Privilege?

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  • Bartels, Bernhard
  • Weiser, Constantin

Abstract

In this paper, we explore the institutional investors' assessment of relative creditworthiness across selected country groups with a special focus on the impact of public debt on the perception of sovereign risk. Our results show that general government debt is among the most important determinants of credit risk in industrialized countries and emerging markets alike. When using a multivariate framework, we further find that the influence of debt on ratings does not differ between both groups. Also, our results point towards a rating penalty for highly-indebted advanced countries when their debt ratio is associated with a growing one. By contrast, a high debt level alone does not lead to an additional rating decline. Finally, we show that peripheral euro area economies (GIIPS) received a rating privilege before the financial crisis that turned into a penalty after 2008.

Suggested Citation

  • Bartels, Bernhard & Weiser, Constantin, 2015. "Public Debt & Sovereign Ratings - Do Industrialized Countries Enjoy a Privilege?," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112822, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc15:112822
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    More about this item

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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