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Sovereign Credit Risk Rating: Examining the Relations between Domestic Economy Data and the Probability of Default

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  • Merve Kırkıl

    (Doktora Öğrencisi, İstanbul Üniversitesi, Sosyal Bilimler Enstitüsü, İktisat Anabilim Dalı, Doktora Öğrencisi, İstanbul, Türkiye)

Abstract

Sovereign credit ratings have gained importance in financial markets. Sovereign ratings have the function of providing necessary information in a common language between market participants who need funds and investors. Sovereign credit ratings affect countries’ borrowing costs. Additionally, ıt affects the decisions of foreign investors and investment funds, to invest in the related country. In sovereign credit risk approaches, various data is used for assessment such as balance of payment, domestic economy indicators, external economy, financial sector status, income and population data, and public finance data. In the scope of this study, the relation between domestic economy indicators and the probability of default are investigated. The logistic regression method was used in the study. The Sovereign default data is analyzed and categorized. It was observed that GDP data, exchange rate, and consumer price growth rate are high explanatory variables that explain the probability of default. G20 countries were included in the study and examined between the years 2008-2017. As a result of the study, the increase in USD exchange rate and a decrease in the GDP in USD have been a factor that increases the probability of default for countries.

Suggested Citation

  • Merve Kırkıl, 2021. "Sovereign Credit Risk Rating: Examining the Relations between Domestic Economy Data and the Probability of Default," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 8(1), pages 57-74, January.
    • Handle: RePEc:ist:iujepr:v:8:y:2021:i:1:p:57-74
    DOI: 10.26650/JEPR838626
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    More about this item

    Keywords

    Small and Medium enterprises; Job creation; Economic growth; Access to capital Somalia;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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