Sovereign Credit Ratings under Fiscal Uncertainty

51 Pages Posted: 21 Nov 2018

See all articles by Arno Hantzsche

Arno Hantzsche

National Institute of Economic and Social Research; University of Nottingham

Date Written: November 12, 2018


This paper studies the response of credit rating agencies to an increase in uncertainty about a government's fiscal position. To that end, a measure of the uncertainty around official forecasts of the public budget deficit is constructed that is comparable across time and a range of advanced economies. To estimate the effect of fiscal uncertainty on sovereign credit ratings, an empirical framework is developed that accounts for the high stability of ratings over time. Results suggest that fiscal uncertainty increases the predictive power of a model of rating changes and can explain why sovereign ratings are often changed more frequently during crises.

Keywords: uncertainty, fiscal policy, sovereign credit ratings, ordered outcome estimation

JEL Classification: C35, G24, H68

Suggested Citation

Hantzsche, Arno, Sovereign Credit Ratings under Fiscal Uncertainty (November 12, 2018). European Stability Mechanism Working Paper No. 32, Available at SSRN: or

Arno Hantzsche (Contact Author)

National Institute of Economic and Social Research ( email )

2 Dean Trench Street
Smith Square
London, SW1P 3HE
United Kingdom

University of Nottingham ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

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