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What 'Hides' Behind Sovereign Debt Ratings?


Antonio Afonso


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

Philipp Rother


European Central Bank (ECB)
January 2007

ECB Working Paper No. 711

Abstract:     
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, H63

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Date posted: January 19, 2007  

Suggested Citation

Afonso, Antonio, Gomes, Pedro M. and Rother, Philipp, What 'Hides' Behind Sovereign Debt Ratings? (January 2007). ECB Working Paper No. 711. Available at SSRN: http://ssrn.com/abstract=954705

Contact Information

Antonio Afonso (Contact Author)
Technical University of Lisbon - ISEG (School of Economics and Management) ( email )
R. Miguel Lupi, 20
Lisbon, 1248-078
Portugal
+351 21 392 2807 (Phone)
+351 21 396 6407 (Fax)
HOME PAGE: http://www.iseg.utl.pt/~aafonso/AAWeb.html
UECE (Research Unit on Complexity and Economics)
Rua Miguel Lupi 20
Lisbon, 1249-078
Portugal
+351-213 925 912 (Phone)
+351-213 971 196 (Fax)
HOME PAGE: http://www.iseg.utl.pt/~uece/
European Central Bank (ECB) ( email )
Kaiserstrasse 29
Frankfurt am Main, D-60311
Germany
HOME PAGE: http://www.ecb.int/home/html/index.en.html
Pedro M. Gomes Sr.
Universidad Carlos III ( email )
Madrid, WC2A 2AE
Spain
HOME PAGE: http://www.eco.uc3m.es/~pgomes/
Philipp Rother
European Central Bank (ECB) ( email )
Kaiserstrasse 29
Frankfurt am Main, D-60311
Germany
+49 69 1344 0 (Phone)
+49 16 1344 6398 (Fax)
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