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Sovereign Credit Ratings and Their Impact on Recent Financial Crises

Roman Kraeussl
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Roman Kraeussl: Center for Financial Studies, Frankfurt am Main, Germany

Authors registered in the RePEc Author Service: Roman Kräussl ()

No 313, Working Papers from University of Crete, Department of Economics

Abstract: This paper discusses the role of the credit rating agencies during the recent financial crises. In particular, it examines whether the agencies can add to the dynamics of emerging market crises. Academics and investors often argue that sovereign credit ratings are responsible for pronounced boom-bust cycles in emerging markets lending. Using a vector autoregressive system this paper examines how US dollar bond yield spreads and the short-term international liquidity position react to an unexpected sovereign credit rating change. Contrary to common belief and previous studies, the empirical results suggest that an abrupt downgrade does not necessarily intensify a financial crisis.

Keywords: Sovereign Risk; Boom-Bust-Cycles; Financial Crises; VAR System (search for similar items in EconPapers)
JEL-codes: E44 E47 G15 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2003-06
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Working Paper: Sovereign Credit Ratings and Their Impact on Recent Financial Crises (2003) Downloads
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