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Sovereign Credit Ratings Methodology: An Evaluation

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  • Mr. Ashok Vir Bhatia

Abstract

This paper describes and evaluates the sovereign credit ratings methodologies of Standard & Poor's, Moody's Investors Service, and Fitch Ratings. A simple definition of ratings failure-based on ratings stability-is proposed and tested, pointing to falling failure rates, consistent upside bias, and strong interagency correlation. Possible causes of ratings failure are separated into informational, analytical, revenue bias, and other incentive problems, each of which is discussed. The paper seeks to highlight methodological developments after the Asian crisis, particularly with regard to the estimation of contingent liabilities and the assessment of international reserves adequacy.

Suggested Citation

  • Mr. Ashok Vir Bhatia, 2002. "Sovereign Credit Ratings Methodology: An Evaluation," IMF Working Papers 2002/170, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2002/170
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    References listed on IDEAS

    as
    1. Nadeem Ul Haque & Manmohan S. Kumar & Nelson Mark & Donald J. Mathieson, 1996. "The Economic Content of Indicators of Developing Country Creditworthiness," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 688-724, December.
    2. Ms. Kalpana Kochhar & Mr. Prakash Loungani & Mr. Mark R. Stone, 1998. "The East Asian Crisis: Macroeconomic Developments and Policy Lessons," IMF Working Papers 1998/128, International Monetary Fund.
    3. Roman Kräussl, 2001. "Sovereign ratings and their impact on recent financial crises," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 7(2), pages 268-269, May.
    4. Mr. Andrew Berg, 1999. "The Asia Crisis: Causes, Policy Responses, and Outcomes," IMF Working Papers 1999/138, International Monetary Fund.
    5. Mr. Se-Jik Kim & Mr. Mark R. Stone, 1999. "Corporate Leverage, Bankruptcy, and Output Adjustment in Post-Crisis East Asia," IMF Working Papers 1999/143, International Monetary Fund.
    6. Mr. Roberto Perrelli & Mr. Christian B. Mulder, 2001. "Foreign Currency Credit Ratings for Emerging Market Economies," IMF Working Papers 2001/191, International Monetary Fund.
    7. repec:bla:intfin:v:2:y:1999:i:2:p:273-93 is not listed on IDEAS
    8. John Ammer & Frank Packer, 2000. "How consistent are credit ratings? a geographic and sectoral analysis of default risk," International Finance Discussion Papers 668, Board of Governors of the Federal Reserve System (U.S.).
    9. Sy, Amadou N. R., 2002. "Emerging market bond spreads and sovereign credit ratings: reconciling market views with economic fundamentals," Emerging Markets Review, Elsevier, vol. 3(4), pages 380-408, December.
    10. Mr. R. B. Johnston & Miss Liliana B Schumacher & Ms. Jingqing Chai, 2000. "Assessing Financial System Vulnerabilities," IMF Working Papers 2000/076, International Monetary Fund.
    11. Mr. Mark R. Stone, 2000. "The Corporate Sector Dynamics of Systemic Financial Crises," IMF Working Papers 2000/114, International Monetary Fund.
    12. Helmut Reisen & Julia Von Maltzan, 1999. "Boom and Bust and Sovereign Ratings," International Finance, Wiley Blackwell, vol. 2(2), pages 273-293, July.
    13. International Monetary Fund, 1996. "The Economic Content of Indicators of Developing Country Creditworthiness," IMF Working Papers 1996/009, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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