What 'Hides' Behind Sovereign Debt Ratings?
Technical University of Lisbon - ISEG (School of Economics and Management); UECE (Research Unit on Complexity and Economics); European Central Bank (ECB)
Pedro M. Gomes Sr.
Universidad Carlos III
European Central Bank (ECB)
ECB Working Paper No. 711
In this paper we study the determinants of sovereign debt credit ratings using rating notations from the three main international rating agencies, for the period 1995-2005. We employ panel estimation and random effects ordered probit approaches to assess the explanatory power of several macroeconomic and public governance variables. Our results point to a good performance of the estimated models, across agencies and across the time dimension, as well as a good overall prediction power. Relevant explanatory variables for a country's credit rating are: GDP per capita, GDP growth, government debt, government effectiveness indicators, external debt, external reserves, and default history.
Number of Pages in PDF File: 67
Keywords: credit ratings, sovereign debt, rating agencies, panel data, random effects ordered probit
JEL Classification: C23, C25, E44, F30, F34, G15, H63working papers series
Date posted: January 19, 2007
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