Procyclicality and Path Dependence of Sovereign Credit Ratings: The Example of Europe

Lennart Freitag

Economic Notes, 2015, vol. 44, issue 2, 309-332

Abstract: type="main" xml:lang="en">

This paper investigates empirically the behavior of Credit Rating Agencies (CRAs) when assessing sovereign solvency for European countries. Using probit regressions, I find that even after controlling for macroeconomic factors, CRAs take the business cycle into account. Also, there is a clear case of path dependence in sovereign ratings. Additionally, it turns out that there seems to be a discrepancy between upgrades and downgrades. These results are robust to a number of different specifications.

Date: 2015
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Working Paper: Procyclicality and path dependence of sovereign credit ratings: The example of Europe (2014)
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