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Credit Ratings and Debt Crises

Author

Listed:
  • Bussière, M.
  • Ristiniemi, A.

Abstract

This paper analyses the role of credit rating agencies in sovereign debt crises. Using a panel of 53 emerging and developing countries with annual data going back to 1977, the paper shows that credit ratings are not very good predictors of debt distress events once tested against a simple benchmark model with standard macroeconomic variables. Next, the paper turns to higher frequency data for a subset of countries to analyze the link between credit ratings and bond spreads. The results indicate that bond spreads react strongly to credit ratings, especially to downgrades in the non-investment grade category. The results are robust to a variety of additional tests.

Suggested Citation

  • Bussière, M. & Ristiniemi, A., 2012. "Credit Ratings and Debt Crises," Working papers 396, Banque de France.
    • Handle: RePEc:bfr:banfra:396
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    Cited by:

    1. Apergis, Nicholas, 2015. "Newswire messages and sovereign credit ratings: Evidence from European countries under austerity reform programmes," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 54-62.
    2. Gibert, Anna, 2022. "Signalling creditworthiness with fiscal austerity," European Economic Review, Elsevier, vol. 144(C).
    3. Aitor Erce, 2012. "Does the IMF's official support affect sovereign bonds maturities?," Globalization Institute Working Papers 128, Federal Reserve Bank of Dallas.
    4. Aitor Erce, 2012. "Does the IMF´s official support affect sovereign bond maturities?," Working Papers 1231, Banco de España.
    5. Audzeyeva, Alena & Fuertes, Ana-Maria, 2018. "On the predictability of emerging market sovereign credit spreads," Journal of International Money and Finance, Elsevier, vol. 88(C), pages 140-157.
    6. repec:hal:spmain:info:hdl:2441/3bvs8clr5k9dqqcbq7j5ul2o65 is not listed on IDEAS
    7. repec:spo:wpmain:info:hdl:2441/3bvs8clr5k9dqqcbq7j5ul2o65 is not listed on IDEAS
    8. Jean Barthélemy & Magali Marx, 2012. "Generalizing the Taylor Principle: New Comment," Working Papers hal-03461113, HAL.
    9. Holden, Steinar & Natvig, Gisle James & Vigier, Adrien, 2012. "An Equilibrium Model of Credit Rating Agencies," Memorandum 01/2013, Oslo University, Department of Economics.
    10. Anna Gibert, 2016. "The Signaling Role of Fiscal Austerity," Discussion Papers of DIW Berlin 1623, DIW Berlin, German Institute for Economic Research.

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    More about this item

    Keywords

    Credit rating agencies; debt crises; fiscal policy; emerging market economies; developing countries; panel estimation.;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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