What 'Hides' Behind Sovereign Debt Ratings?

By António Afonso, Pedro Gomes, P. Rother. Social Science Research Network, 2007

183 citations recorded by the source corpus.

In this paper we study the determinants of sovereign debt credit ratings using rating notations from the three main international rating agencies, for the period 1995-2005. We employ panel estimation and random effects ordered probit approaches to assess the explanatory power of several macroeconomic and public governance variables. Our results point to a good performance of the estimated models, across agencies and across the time dimension, as well as a good overall prediction power. Relevant explanatory variables for a country's credit rating are: GDP per capita, GDP growth, government debt, government effectiveness indicators, external debt, external reserves, and default history.

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Citations in the corpus

Short‐ and long‐run determinants of sovereign debt credit ratings (2011, background): “2 See, for instance, Hajivassiliou and Ioannides (2007). while is a short-term effect (e. g. if a country manages to reduce unemployment this year what is the impact on the rating).”
PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies (2011, methodology): “(2002), Block and Vaaler (2004) and Afonso et al. (2007, 2009). It seems that no study exists which analyzes the role of rating agencies during the current European sovereign debt crisis using such methods. Our paper also adds to the literature that finds a significant impact of ratings on governmen”
What Drives Spreads in the Euro Area Government Bond Market? (2007, unknown): “7 In explaining government debt ratings, the interest rate (spread) usually is not a relevant factor, as can be seen from the overview of studies in this area by Afonso et al. (2007). 206 SIMONE MANGANELLI AND GUIDO WOLSWIJK”
Determinants of Government Bond Spreads in New EU Countries (2010, methodology): “First, we use the ratio of fiscal balance to the gross domestic product (GDP) that is expected to have a negative impact on spreads (see Afonso et al. 2007; Schuknecht et al. 2008).”
Market Discipline, Financial Integration and Fiscal Rules: What Drives Spreads in the Euro Area Government Bond Market? (2007, unknown): “As before the monetary union large deficits were generally associated with sizeable spreads, people argue that the euro may have eliminated the capacity of bond markets to discriminate between the qualities of fiscal 1 See Baele et al. (2004) for a more formal definition of financial integration.”
The Pricing of Sovereign Risk and Contagion During the European Sovereign Debt Crisis (2013, methodology): “A particular focus is on whether market discipline is advanced or 3 Afonso et al (2007) also highlight the difficulty in modeling sovereign spreads.”
Sovereign bond yield spreads and sustainability: An empirical analysis of OECD countries (2019, background): “In particular, governance is frequently studied in connection with country risk (Erb et al., 1996; Haque et al., 1998; Ciocchini et al., 2003; Butler and Fauver, 2006; Afonso et al., 2007; Connolly, 2007).”