Rating for government debt and economic stability

Kenichi Tamegawa

The Journal of Economic Asymmetries, 2016, vol. 13, issue C, 35-44

Abstract: In this study, we incorporate a credit rating scheme for government debt into a standard dynamic general equilibrium model. We then analyze the relationship between a credit rating system and economic stability. The main result demonstrates the existence of an unstable rating system. Such a system would be generated by information asymmetries between rating agencies and government stances regarding debt. We also find that if the sensitivity of credit ratings to debt-to-GDP ratio is high, then it could lead to economic instability in the sense that this ratio explodes.

Keywords: Debt rating; Government debt; Stability; Dynamic stochastic general equilibrium modeling (search for similar items in EconPapers)
JEL-codes: E62 H63 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:13:y:2016:i:c:p:35-44

DOI: 10.1016/j.jeca.2015.05.003

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