Ratings, Debt, and Deficits: An Exploration

Olivier Blanchard, Daniel Leigh and Prachi Mishra

No 35956, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E62 F34 G24 H63 H68 (search for similar items in EconPapers)
Date: 2026-10
Note: EFG
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