Credit Rating and Debt Crises

15 Pages Posted: 22 May 2020

See all articles by Steinar Holden

Steinar Holden

University of Oslo - Department of Economics; Norges Bank; CESifo (Center for Economic Studies and Ifo Institute)

Gisle James Natvik

BI Norwegian Business School

Adrien Vigier

University of Oxford - Department of Economics

Date Written: May 2018

Abstract

We develop an equilibrium theory of credit rating in the presence of rollover risk. By influencing rational creditors, ratings affect sovereigns' probability of default, which in turn affects ratings. Our analysis reveals a pro‐cyclical impact of credit rating: In equilibrium the presence of a rating agency increases default risk when it is high and decreases default risk when it is low.

Suggested Citation

Holden, Steinar and Natvik, Gisle James and Vigier, Adrien, Credit Rating and Debt Crises (May 2018). International Economic Review, Vol. 59, Issue 2, pp. 973-987, 2018, Available at SSRN: https://ssrn.com/abstract=3602066 or http://dx.doi.org/10.1111/iere.12293

Steinar Holden (Contact Author)

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway
+47 22 85 51 56 (Phone)
+47 22 85 50 35 (Fax)

HOME PAGE: http://folk.uio.no/~sholden/

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Gisle James Natvik

BI Norwegian Business School

Nydalsveien 37
Oslo, 0442
Norway

Adrien Vigier

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

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