Modelling the U.S. sovereign credit rating

Michael Wickens and Vito Polito

No 9150, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A methodology for generating sovereign credit ratings based on macroeconomic theory is proposed. This is applied to quarterly U.S. data from 1970 to 2011. Over this period the official credit rating of U.S. Treasury securities has been of the highest quality. In contrast, the model-based measure finds that there are two clear instances in which the U.S. sovereign credit rating, if evaluated on the basis of economic fundamentals, should have been have been downgraded: the first oil crisis of the 1970s and in the aftermath of the Lehman collapse in 2008. This result is robust to several alternative views on the maximum borrowing capacity of the U.S. economy.

Keywords: Credit risk; Default probability; Fiscal limits; Sovereign risk (search for similar items in EconPapers)
JEL-codes: E62 H30 H60 (search for similar items in EconPapers)
Date: 2012-09
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (1)

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Journal Article: Modelling the U.S. sovereign credit rating (2014)
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