CREDIT RATING AND DEBT CRISES

Steinar Holden, Gisle Natvik and Adrien Vigier

International Economic Review, 2018, vol. 59, issue 2, 973-987

Abstract: We develop an equilibrium theory of credit rating in the presence of rollover risk. By influencing rational creditors, ratings affect sovereigns' probability of default, which in turn affects ratings. Our analysis reveals a pro†cyclical impact of credit rating: In equilibrium the presence of a rating agency increases default risk when it is high and decreases default risk when it is low.

Date: 2018
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