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Debt-threshold effect in sovereign credit ratings: New evidence from nonlinear panel smooth transition models

Oussama Ben Hmiden and Nidhaleddine Ben Cheikh ()

Finance Research Letters, 2016, vol. 19, issue C, 273-278

Abstract: This paper formally tests the presence of threshold effect in sovereign credit ratings with respect to government debt level. As ad hoc methods have been used in the previous studies, we propose to implement a nonlinear panel smooth transition model where the appropriate debt-threshold value is estimated endogenously from the data. Our results reveal a strong regime-dependence in rating decisions, in the sense that the determinants of sovereign risk vary across different vulnerability levels.

Keywords: Sovereign credit ratings; Sovereign risk; Panel smooth transition regression models; Emerging markets (search for similar items in EconPapers)
JEL-codes: C23 F34 G24 H63 (search for similar items in EconPapers)
Date: 2016
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Handle: RePEc:eee:finlet:v:19:y:2016:i:c:p:273-278