Structural factors, global shocks and sovereign debt credit ratings

Carlos Uribe-Teran and Santiago Mosquera ()
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Santiago Mosquera: Universidad San Francisco de Quito

Journal of Economics and Finance, 2019, vol. 43, issue 1, No 7, 104-126

Abstract: Abstract We analyse the role of fundamentals that reflect the sovereigns’ solvency (structural factors) and global shocks as determinants of sovereign debt credit ratings. By means of random effects ordered probit estimations, we show that structural features have short- and long-run effects that are robust to alternative specifications. The low variation of the structural variables and the world’s economic cycle captured by global shocks are key to obtain a higher proportion of correctly predicted downgrades and fewer mismatches between the estimated rating scale and the data. This also reduces the wrongly predicted upgrades to Investment Grade Status.

Keywords: Panel data models; Ordered probit; Prediction error; Global shocks; Rating agencies; Sovereign debt (search for similar items in EconPapers)
JEL-codes: C23 C25 C53 F44 G24 H63 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s12197-018-9435-0

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