Rating the Rating Agencies: Anticipating Currency Crises or Debt Crises?

26 Pages Posted: 1 Aug 2003

See all articles by Amadou Nicolas Racine Sy

Amadou Nicolas Racine Sy

International Monetary Fund (IMF) - International Capital Markets Department; Brookings Institution

Date Written: June 2003

Abstract

In contrast to the early-warning system literature, we find that currency and debt crises are not closely linked in emerging markets. We find that after 1994, credit ratings predict debt crises but fail to anticipate currency crises. When debt crises are defined as sovereign distress - when spreads are higher than 1,000 basis points - we find that countries experience reduced capital market access and high interest rates on their external debt for typically more than two quarters. We also find that lagged ratings and ratings changes, including negative outlooks and credit watches, anticipate such debt crises.

Keywords: Crisis, default, distress, early-warning systems, probability of default, ratings

JEL Classification: G15, G20, F3

Suggested Citation

Sy, Amadou Nicolas Racine, Rating the Rating Agencies: Anticipating Currency Crises or Debt Crises? (June 2003). IMF Working Paper No. 03/122, Available at SSRN: https://ssrn.com/abstract=424440 or http://dx.doi.org/10.2139/ssrn.424440

Amadou Nicolas Racine Sy (Contact Author)

International Monetary Fund (IMF) - International Capital Markets Department ( email )

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