Default, Currency Crises and Sovereign Credit Ratings

36 Pages Posted: 24 Jan 2002 Last revised: 16 Aug 2003

See all articles by Carmen M. Reinhart

Carmen M. Reinhart

Peter G. Peterson Institute for International Economics; National Bureau of Economic Research (NBER)

Date Written: January 2002

Abstract

Sovereign credit ratings play an important role in determining the terms and the extent to which countries have access to international capital markets. In principle, there is no reason why changes in sovereign credit ratings should be expected to systematically predict a currency crisis. In practice, however, in developing countries there is a strong link between currency crises and default. About 85 percent of all the defaults in the sample are linked with currency crises. The results presented here suggest that sovereign credit ratings systematically fail to anticipate currency crises--but do considerably better predicting defaults. Downgrades usually follow the currency crisis--possibly highlighting how currency instability increases default risk.

Suggested Citation

Reinhart, Carmen M., Default, Currency Crises and Sovereign Credit Ratings (January 2002). NBER Working Paper No. w8738. Available at SSRN: https://ssrn.com/abstract=298262

Carmen M. Reinhart (Contact Author)

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
102
Abstract Views
2,096
rank
266,206
PlumX Metrics