Understanding Rating Movements in Euro Area Countries

Jan Bruha, Moritz Karber, Beatrice Pierluigi and Ralph Setzer

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: This paper investigates the link between sovereign ratings and macroeconomic fundamentals for a group of euro area countries that recorded rating downgrades during the euro area sovereign debt crisis. We apply an elaborated econometric estimation technique, based on a Bayesian ordered probit model, to understand how the decisions of rating agencies can be explained by economic developments. The estimated model reproduces historical ratings by using a small number of economic and institutional variables which seem to effectively summarize the large number of criteria used by Moody's, Standard & Poor's and Fitch in their assignment of sovereign ratings. Our results suggest that the size of the downgrades observed since the start of the sovereign crisis has been broadly in line with the deterioration of economic fundamentals for most countries.

Keywords: Euro area crisis; panel probit model; sovereign debt; sovereign rating (search for similar items in EconPapers)
JEL-codes: C25 G24 H63 H68 (search for similar items in EconPapers)
Date: 2017-10
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2017/06

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