Visegrad Four Countries and Their Sovereign Credit Rating

Abstract

In this paper we study the sovereign credit rating determinants of Visegrad Four countries in the period 1993-2012. The sovereign ratings in this study come from four major credit rating agencies namely Moody’s, S&P, Fitch and R&I. Besides macroeconomic and socio-political indicators we analyse influence of EU and EMU membership as an economic and geo-political variables. We use linear model with fixed effects and ordered probit model to estimate parameters and to identify relevant determinants of sovereign credit rating. Besides the economic variables inflation, unemployment, broad money to GDP, import to export, openness of the economy, government gross debt, primary balance and size of the government we found out that voice & accountability score of Worldwide Governance Indicators is suitable representative of socio-political situation. Both EU and EMU membership provide additional information to other explanatory variables. Unlike in other academic papers, the growth of GDP was not significant variable to explain the sovereign ratings. The government finance is the most influential determinant in the researched dataset. The findings suggest that there are some differences in the methodology of various credit rating agencies. Although they use the set of similar explanatory variables; they employ different weights and various combination of factors.

Keywords: sovereign rating, Visegrad Four, panel data

JEL Classification: F30, G15, G24