Ratings, Debt, and Deficits: An Exploration

Olivier Blanchard, Daniel Leigh and Prachi Mishra
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Olivier Blanchard: Peterson Institute for International Economics, Paris School of Economics, and Massachusetts Institute of Technology
Daniel Leigh: International Monetary Fund
Prachi Mishra: Ashoka University

No 171, Working Papers from Ashoka University, Department of Economics

Abstract: We look at the effects of debt and primary fiscal balances on sovereign credit ratings through the lens of a simple model. We find that the ratings differ from the implications of the model in three important ways. They give much more weight to debt relative to forecast primary balances. They understate the effects of the difference between the interest rate and the growth rate. They give a very large role to country effects. For the same level of debt and forecast primary balances, they imply extremely different ratings across countries, and imply extremely different levels of debt needed to reach a given rating.

Pages: 46
Date: 2026-09-21
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Persistent link: https://EconPapers.repec.org/RePEc:ash:wpaper:171

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