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Structural factors, global shocks and sovereign debt credit ratings

Author

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  • Carlos Uribe-Teran

    (Universidad San Francisco de Quito)

  • Santiago Mosquera

    (Universidad San Francisco de Quito)

Abstract

We analyse the role of fundamentals that reflect the sovereigns’ solvency (structural factors) and global shocks as determinants of sovereign debt credit ratings. By means of random effects ordered probit estimations, we show that structural features have short- and long-run effects that are robust to alternative specifications. The low variation of the structural variables and the world’s economic cycle captured by global shocks are key to obtain a higher proportion of correctly predicted downgrades and fewer mismatches between the estimated rating scale and the data. This also reduces the wrongly predicted upgrades to Investment Grade Status.

Suggested Citation

  • Carlos Uribe-Teran & Santiago Mosquera, 2019. "Structural factors, global shocks and sovereign debt credit ratings," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(1), pages 104-126, January.
    • Handle: RePEc:spr:jecfin:v:43:y:2019:i:1:d:10.1007_s12197-018-9435-0
    DOI: 10.1007/s12197-018-9435-0
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    More about this item

    Keywords

    Panel data models; Ordered probit; Prediction error; Global shocks; Rating agencies; Sovereign debt;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • 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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