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Countries Credit Ratings And Exchange Rates €“ The Impact Of Economic Development

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  • Patrycja Chodnicka-Jaworska

    (University of Warsaw, Poland)

  • Piotr Jaworski

    (University of Warsaw, Poland)

Abstract

The aim of this paper is to verify the impact of countries credit rating changes on the rates of return of exchange rates, taking into account the level of economic development. A literature review has been made, as a result of which the following hypothesis is proposed: Exchange rates have stronger reaction to the countries credit rating changes in developed economies. The strongest impact of the credit rating changes is observed for a downgrade, both in developed and developing economies. In order to prepare the analysis daily data from the Thomson Reuters Database from 1980 to 2015 for 225 countries have been collected by using event study methodology. Daily differences between the logarithmized rates of return of exchange rates are taken into consideration as a dependent variable, and long-term issuer credit rating changes proposed by smaller and larger credit rating agencies are treated as independent variables.

Suggested Citation

  • Patrycja Chodnicka-Jaworska & Piotr Jaworski, "undated". "Countries Credit Ratings And Exchange Rates €“ The Impact Of Economic Development," Review of Socio - Economic Perspectives 201608, Reviewsep.
    • Handle: RePEc:aly:journl:201608
    DOI: https://dx.medra.org/10.19275/RSEP003
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    References listed on IDEAS

    as
    1. Bissoondoyal-Bheenick, Emawtee, 2005. "An analysis of the determinants of sovereign ratings," Global Finance Journal, Elsevier, vol. 15(3), pages 251-280, February.
    2. Baum, Christopher F. & Schäfer, Dorothea & Stephan, Andreas, 2016. "Credit rating agency downgrades and the Eurozone sovereign debt crises," Journal of Financial Stability, Elsevier, vol. 24(C), pages 117-131.
    3. Kraussl, Roman, 2005. "Do credit rating agencies add to the dynamics of emerging market crises?," Journal of Financial Stability, Elsevier, vol. 1(3), pages 355-385, April.
    4. Blaise Gadanecz & Ken Miyajima & Chang Shu, 2014. "Exchange rate risk and local currency sovereign bond yields in emerging markets," BIS Working Papers 474, Bank for International Settlements.
    5. Suk-Joong Kim & Eliza Wu, 2018. "Sovereign Credit Ratings, Capital Flows and Financial Sector Development in Emerging Markets," World Scientific Book Chapters, in: Information Spillovers and Market Integration in International Finance Empirical Analyses, chapter 13, pages 431-466, World Scientific Publishing Co. Pte. Ltd..
    6. Makram El-Shagi, 2010. "The role of rating agencies in financial crises: event studies from the Asian flu," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 34(4), pages 671-685.
    7. Asonuma, Tamon, 2014. "Sovereign defaults, external debt and real exchange rate dynamics," MPRA Paper 55133, University Library of Munich, Germany.
    8. Steiner, Manfred & Heinke, Volker G, 2001. "Event Study Concerning International Bond Price Effects of Credit Rating Actions," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(2), pages 139-157, April.
    9. Robert Brooks & Robert Faff & Sirimon Treepongkaruna & Eliza Wu, 2015. "Do Sovereign Re-Ratings Destabilize Equity Markets during Financial Crises? New Evidence from Higher Return Moments," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 42(5-6), pages 777-799, June.
    10. Hooper, Vince & Hume, Timothy & Kim, Suk-Joong, 2008. "Sovereign rating changes--Do they provide new information for stock markets?," Economic Systems, Elsevier, vol. 32(2), pages 142-166, June.
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    More about this item

    Keywords

    credit rating; rates of return; economy development; exchange rates;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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