Are Credit Ratings Procyclical?

Bank for International Settlements Working Paper No. 129

52 Pages Posted: 13 Dec 2005

Date Written: February 2003


This paper studies the influence of the state of the business cycle on credit ratings. In particular, we assess whether rating agencies are excessively procyclical in their assignment of ratings. Our analysis is based on a model of ratings determination that takes into account factors that measure the business and financial risks of firms, in addition to indicators of macroeconomic conditions. Utilizing annual data on all US firms rated by Standard & Poor's, we find little evidence of procyclicality in ratings. By contrast, we find that initial ratings and rating changes exhibit excess sensitivity to the business cycle. The paper offers two explanations of these results.

Keywords: rating agencies, business cycles, credit risk

JEL Classification: G20, G28, G32

Suggested Citation

Amato, Jeffery D. and Furfine, Craig, Are Credit Ratings Procyclical? (February 2003). Bank for International Settlements Working Paper No. 129, Available at SSRN: or

Jeffery D. Amato

Goldman Sachs International ( email )

United States

Craig Furfine (Contact Author)

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

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