Sovereign credit rating determinants: the impact of the European debt crisis

Peter Reusens and Christophe Croux

No 540395, Working Papers of Department of Decision Sciences and Information Management, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Decision Sciences and Information Management, Leuven

Abstract: This paper compares the importance of different sovereign credit rating determinants over time, using a sample of 90 countries for the years 2002-2015. Applying the composite marginal likelihood approach, we estimate a multi-year ordered probit model for each of the three major credit rating agencies. After the start of the European debt crisis in 2009, the importance of the financial balance, the economic development and the external debt increased substantially and the effect of Eurozone membership switched from positive to negative. In addition, GDP growth gained a lot of importance for highly indebted sovereigns and government debt became much more important for countries with a low GDP growth rate. These findings provide empirical evidence that the credit rating agencies changed their sovereign credit rating assessment after the start of the European debt crisis.

Keywords: Composite marginal likelihood; Credit rating agencies; European debt crisis; Multi-year ordered probit model; Sovereign credit rating determinants (search for similar items in EconPapers)
Date: 2016-05
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Published in FEB Research Report KBI_1615

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Persistent link: https://EconPapers.repec.org/RePEc:ete:kbiper:540395

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