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Debt-threshold effect in sovereign credit ratings: New evidence from nonlinear panel smooth transition models

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  • Ben Hmiden, Oussama
  • Ben Cheikh, Nidhaleddine

Abstract

This paper formally tests the presence of threshold effect in sovereign credit ratings with respect to government debt level. As ad hoc methods have been used in the previous studies, we propose to implement a nonlinear panel smooth transition model where the appropriate debt-threshold value is estimated endogenously from the data. Our results reveal a strong regime-dependence in rating decisions, in the sense that the determinants of sovereign risk vary across different vulnerability levels.

Suggested Citation

  • Ben Hmiden, Oussama & Ben Cheikh, Nidhaleddine, 2016. "Debt-threshold effect in sovereign credit ratings: New evidence from nonlinear panel smooth transition models," Finance Research Letters, Elsevier, vol. 19(C), pages 273-278.
    • Handle: RePEc:eee:finlet:v:19:y:2016:i:c:p:273-278
    DOI: 10.1016/j.frl.2016.09.001
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    1. González, Andrés & Teräsvirta, Timo & van Dijk, Dick & Yang, Yukai, 2005. "Panel Smooth Transition Regression Models," SSE/EFI Working Paper Series in Economics and Finance 604, Stockholm School of Economics, revised 11 Oct 2017.
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    9. Erdem, Orhan & Varli, Yusuf, 2014. "Understanding the sovereign credit ratings of emerging markets," Emerging Markets Review, Elsevier, vol. 20(C), pages 42-57.
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    Cited by:

    1. Ben Lahouel, Béchir & Bruna, Maria-Giuseppina & Ben Zaied, Younes, 2020. "The curvilinear relationship between environmental performance and financial performance: An investigation of listed french firms using panel smooth transition model," Finance Research Letters, Elsevier, vol. 35(C).
    2. Ben Hmiden, Oussama & Tatoutchoup, Didier & Nguimkeu, Pierre & Avelé, Donatien, 2024. "Discrepancy and cross-regional bias in sovereign credit ratings: Analyzing the role of public debt," Economic Modelling, Elsevier, vol. 131(C).
    3. Nidhaleddine Ben Cheikh & Oussama Ben Hmiden & Younes Ben Zaied & Sabri Boubaker, 2021. "Do sovereign credit ratings matter for corporate credit ratings?," Annals of Operations Research, Springer, vol. 297(1), pages 77-114, February.

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    More about this item

    Keywords

    Sovereign credit ratings; Sovereign risk; Panel smooth transition regression models; Emerging markets;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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