IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/86642.html
   My bibliography  Save this paper

The Effect of the Macroeconomic Determinants on Sovereign Credit Rating of Turkey

Author

Listed:
  • Aras, Osman Nuri
  • Öztürk, Mustafa

Abstract

The effects of the main macroeconomic determinants on the sovereign credit rating of Turkey assigned by Standard & Poor’s are analyzed in this paper. As the main macroeconomic determinants, inflation rate, economic growth rate, foreign direct investment, external debt, current account debt and savings are taken into account in this study. The data related to Turkey in this study covers between 1992-2016. In this study, the Granger causality test and the OLS regression model are used for that correlations of the variables. Outcomes of the analysis show that just two in six macroeconomic determinants are effective on the sovereign credit rating. According to the results of the study, external debt and inflation rate have a statistically significant relationship with the sovereign credit rating of Turkey. The outcomes show that external debt and the inflation rate have negative effects on the sovereign credit rating of the country. The coefficient of the external debt and the inflation is negative which means that if the inflation or external debt increases the rating decreases in appropriate with the theory. On the other hand, the effects of the other four macroeconomic variables are not significant. The results of the study indicate that some factors other than the primary macroeconomic determinants are effective on the sovereign credit ratings of Turkey. The results also unveil the door for the criticism that the decisions of the credit rating agencies are biased.

Suggested Citation

  • Aras, Osman Nuri & Öztürk, Mustafa, 2018. "The Effect of the Macroeconomic Determinants on Sovereign Credit Rating of Turkey," MPRA Paper 86642, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:86642
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/86642/1/MPRA_paper_86642.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Oliveira, Luís & Curto, José Dias & Nunes, João Pedro, 2012. "The determinants of sovereign credit spread changes in the Euro-zone," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(2), pages 278-304.
    2. Bissoondoyal-Bheenick, Emawtee & Brooks, Robert & Yip, Angela Y.N., 2006. "Determinants of sovereign ratings: A comparison of case-based reasoning and ordered probit approaches," Global Finance Journal, Elsevier, vol. 17(1), pages 136-154, September.
    3. Otaviano Canuto & Pablo F. Pereira Dos Santos & Paulo C. De Sá Porto, 2012. "Macroeconomics And Sovereign Risk Ratings," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 3(02), pages 1-25.
    4. Carmen M. Reinhart, 2002. "Default, Currency Crises, and Sovereign Credit Ratings," The World Bank Economic Review, World Bank, vol. 16(2), pages 151-170, August.
    5. Carmen Altenkirch, 2005. "The Determinants Of Sovereign Credit Ratings: A New Empirical Approach," South African Journal of Economics, Economic Society of South Africa, vol. 73(3), pages 462-473, September.
    6. Hill, Paula & Brooks, Robert & Faff, Robert, 2010. "Variations in sovereign credit quality assessments across rating agencies," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1327-1343, June.
    7. Emanuele Baldacci & Sanjeev Gupta & Amine Mati, 2011. "Political and Fiscal Risk Determinants of Sovereign Spreads in Emerging Markets," Review of Development Economics, Wiley Blackwell, vol. 15(2), pages 251-263, May.
    8. Alexander W. Butler & Larry Fauver, 2006. "Institutional Environment and Sovereign Credit Ratings," Financial Management, Financial Management Association, vol. 35(3), Autumn.
    9. Jens Hilscher & Yves Nosbusch, 2010. "Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt," Review of Finance, European Finance Association, vol. 14(2), pages 235-262.
    10. Erdem, Orhan & Varli, Yusuf, 2014. "Understanding the sovereign credit ratings of emerging markets," Emerging Markets Review, Elsevier, vol. 20(C), pages 42-57.
    11. Mr. Sanjeev Gupta & Mr. Amine Mati & Mr. Emanuele Baldacci, 2008. "Is it (Still) Mostly Fiscal? Determinants of Sovereign Spreads in Emerging Markets," IMF Working Papers 2008/259, International Monetary Fund.
    12. Robert Brooks & Robert Faff & Tim Fry & E. Bissoondoyal-Bheenick, 2005. "Alternative beta risk estimators in cases of extreme thin trading: Canadian evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 15(18), pages 1251-1258.
    13. Bissoondoyal-Bheenick, Emawtee, 2005. "An analysis of the determinants of sovereign ratings," Global Finance Journal, Elsevier, vol. 15(3), pages 251-280, February.
    14. António Afonso & Pedro Gomes & Philipp Rother, 2011. "Short‐ and long‐run determinants of sovereign debt credit ratings," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 16(1), pages 1-15, January.
    15. Mr. Ashok Vir Bhatia, 2002. "Sovereign Credit Ratings Methodology: An Evaluation," IMF Working Papers 2002/170, International Monetary Fund.
    16. Constantin Mellios & Eric Paget-Blanc, 2006. "Which factors determine sovereign credit ratings?," The European Journal of Finance, Taylor & Francis Journals, vol. 12(4), pages 361-377.
    17. Steven B. Kamin & Karsten von Kleist, 1999. "The evolution and determinants of emerging market credit spreads in the 1990s," International Finance Discussion Papers 653, Board of Governors of the Federal Reserve System (U.S.).
    18. Antonio Afonso, 2003. "Understanding the determinants of sovereign debt ratings: Evidence for the two leading agencies," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 27(1), pages 56-74, March.
    19. Richard Cantor & Frank Packer, 1996. "Determinants and impact of sovereign credit ratings," Economic Policy Review, Federal Reserve Bank of New York, vol. 2(Oct), pages 37-53.
    20. Steven B. Kamin & K von Kleist, 1999. "The evolution and determinants of emerging markets credit spreads in the 1990s," BIS Working Papers 68, Bank for International Settlements.
    21. Sanket Mohapatra & Manabu Nose & Dilip Ratha, 2018. "Determinants of the distance between sovereign credit ratings and sub-sovereign bond ratings: Evidence from emerging markets and developing economies," Applied Economics, Taylor & Francis Journals, vol. 50(9), pages 934-956, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Daniel Francois Meyer & Lerato Mothibi, 2021. "The Effect of Risk Rating Agencies Decisions on Economic Growth and Investment in a Developing Country: The Case of South Africa," JRFM, MDPI, vol. 14(7), pages 1-17, June.
    2. Yilmaz Onur Ari, 2020. "A Comparison of Romanian Economy’s Macro Indicators with Other Countries That Have the Same Credit Score," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 8(1), pages 77-87, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Choy, Swee Yew & Chit, Myint Moe & Teo, Wing Leong, 2021. "Sovereign credit ratings: Discovering unorthodox factors and variables," Global Finance Journal, Elsevier, vol. 48(C).
    2. Teixeira, João C.A. & Silva, Francisco J.F. & Ferreira, Manuel B.S. & Vieira, José A.C., 2018. "Sovereign credit rating determinants under financial crises," Global Finance Journal, Elsevier, vol. 36(C), pages 1-13.
    3. Zoran Ivanovic & Sinisa Bogdan & Suzana Baresa, 2015. "Modeling and Estimating Shadow Sovereign Ratings," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 9(3), September.
    4. Slapnik, Ursula & Lončarski, Igor, 2023. "Understanding sovereign credit ratings: Text-based evidence from the credit rating reports," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 88(C).
    5. Diego Silveira Pacheco De Oliveira & Gabriel Caldas Montes, 2016. "Beyond The Macroeconomic Determinants Of Sovereign Credit Ratings In Developing Economies: A Panel Data Analysis Considering Different Dimensions," Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] 049, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    6. Gabriel Caldas Montes & Diego Silveira Pacheco Oliveira, 2019. "Central bank transparency and sovereign risk ratings: a panel data approach," International Economics and Economic Policy, Springer, vol. 16(2), pages 417-433, April.
    7. Luitel, Prabesh & Vanpée, Rosanne & De Moor, Lieven, 2016. "Pernicious effects: How the credit rating agencies disadvantage emerging markets," Research in International Business and Finance, Elsevier, vol. 38(C), pages 286-298.
    8. Bernal, Oscar & Girard, Alexandre & Gnabo, Jean-Yves, 2016. "The importance of conflicts of interest in attributing sovereign credit ratings," International Review of Law and Economics, Elsevier, vol. 47(C), pages 48-66.
    9. Huong Dang, 2014. "How dimensions of national culture and institutional characteristics influence sovereign rating migration dynamics," ZenTra Working Papers in Transnational Studies 42 / 2014, ZenTra - Center for Transnational Studies.
    10. Antonio Afonso & Joao Tovar Jalles, 2019. "Sovereign Ratings and Finance Ministers' Characteristics," Economics Bulletin, AccessEcon, vol. 39(4), pages 2999-3010.
    11. Dilek Teker & Aynur Pala & Oya Kent, 2013. "Determination of Sovereign Rating: Factor Based Ordered Probit Models for Panel Data Analysis Modelling Framework," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 122-132.
    12. Gabriel Caldas Montes & Diego S. P. Oliveira & Helder Ferreira Mendonça, 2016. "Sovereign Credit Ratings in Developing Economies: New Empirical Assessment," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 21(4), pages 382-397, October.
    13. Panos Gavras & Sofoklis D. Vogiazas & Maria Koura, 2016. "An Empirical Assessment of Sovereign Country Risk in the Black Sea Region," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 22(1), pages 77-93, February.
    14. Zamira Oskonbaeva, 2020. "Determinants of credit ratings: evidence from panel discrete model," Economics and Business Letters, Oviedo University Press, vol. 9(3), pages 240-247.
    15. Emilian C. Miricescu & Lucian Ţâţu & Delia Cornea, 2016. "The Determinants of the Sovereign Debt Rating: Evidence for the European Union Countries," ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH, Faculty of Economic Cybernetics, Statistics and Informatics, vol. 50(1), pages 175-188.
    16. Srđan Jelinek & Pavle Milošević & Aleksandar Rakićević & Ana Poledica & Bratislav Petrović, 2022. "A Novel IBA-DE Hybrid Approach for Modeling Sovereign Credit Ratings," Mathematics, MDPI, vol. 10(15), pages 1-21, July.
    17. Salvador, Carlos & Pastor, Jose Manuel & Fernández de Guevara, Juan, 2014. "Impact of the subprime crisis on bank ratings: The effect of the hardening of rating policies and worsening of solvency," Journal of Financial Stability, Elsevier, vol. 11(C), pages 13-31.
    18. Emara, Noha, 2012. "Inflation volatility, financial institutions and sovereign debt rating," MPRA Paper 68688, University Library of Munich, Germany.
    19. 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.
    20. Alexandru MINEA & Jean-Louis COMBES & Weneyam Hippolyte BALIMA, 2015. "Sovereign Debt Risk in Emerging Countries: Does Inflation Targeting Adoption Make Any Difference?," Working Papers 201504, CERDI.

    More about this item

    Keywords

    Sovereign risk; Sovereign credit rating; Credit rating agencies; Macroeconomic determinants; Turkey.;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • F30 - International Economics - - International Finance - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:86642. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.