IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Rating Sovereign Debt in a Monetary Union – Original Sin by Transnational Governance

  • Finn Marten Körner


    (University of Oldenburg - International Economics & ZenTra)

  • Hans-Michael Trautwein


    (University of Oldenburg - International Economics & ZenTra)

It is frequently argued that credit rating agencies (CRAs) have acted procyclically in their rating of sovereign debt in the European Monetary Union (EMU). They are believed to have under-rated sovereign risk in the early years of EMU, when integrated financial markets provided easier access to liquidity, and to have contributed to the recent Eurozone debt crisis by over-rating the lack of (individual) monetary sovereignty that EMU entails for its member states. Yet, there is little direct evidence for this so far. While CRAs are quite explicit about their risk assessments concerning public debt that is denominated in foreign currency, the same cannot be said about their treatment of sovereign debt issued in the currency of a monetary union. We examine the major CRAs’ methodologies for rating sovereign debt and test their ratings for a monetary union bonus in good times and a malus, akin to the ‘original sin’ problem of emerging market countries, in bad times. Using a newly compiled dataset of quarterly sovereign bond ratings from 1990 until 2012, we find some evidence that EMU countries received a rating bonus on euro-denominated debt before the global financial crisis and a large penalty after 2007.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: First version, 2014
Download Restriction: no

Paper provided by ZenTra - Center for Transnational Studies in its series ZenTra Working Papers in Transnational Studies with number 35 / 2014.

in new window

Length: 25 pages
Date of creation: Jun 2014
Date of revision: Jun 2014
Handle: RePEc:zen:wpaper:35
Contact details of provider: Postal: 26111 Oldenburg
Phone: +49 441 798-4117
Fax: +49 441 798-4116
Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:zen:wpaper:35. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Finn Marten Koerner)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.