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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

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    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. 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.
    5. 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.
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    8. Asonuma, Tamon, 2014. "Sovereign defaults, external debt and real exchange rate dynamics," MPRA Paper 55133, University Library of Munich, Germany.
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    10. 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.
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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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