Sovereign ratings and their asymmetric response to fundamentals

Carmen Broto and Luis Molina Sánchez

No 1428, Working Papers from Banco de España

Abstract: Changes in sovereign ratings are strongly asymmetric, as downgrades tend to be deeper and faster than upgrades. In other words, once a country loses its initial status it takes a long time to recover it. Using S&P data, we characterise “rating cycles” in terms of their duration and amplitude. We then study whether the agency reaction to new economic and financial domestic information also differs during upgrade and downgrade phases. Our results indicate that favourable fundamentals could be helpful for smoothing and slowing down the path of downgrades, whereas favourable fundamentals do not seem to accelerate the rating recovery.

Keywords: sovereign credit ratings; rating cycle; emerging countries; panel data model. (search for similar items in EconPapers)
JEL-codes: C33 G24 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2014-12
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Sovereign ratings and their asymmetric response to fundamentals (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1428

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