Credit rating dynamics: evidence from a natural experiment

Nordine Abidi, Matteo Falagiarda and Ixart Miquel-Flores ()

No 2274, Working Paper Series from European Central Bank

Abstract: This paper investigates the behaviour of credit rating agencies (CRAs) using a natural experiment in monetary policy. Specifically, we exploit the corporate QE of the Eurosystem and its rating-based specific design which generates exogenous variation in the probability for a bond of becoming eligible for outright purchases. We show that after the launch of the policy, rating upgrades were mostly noticeable for bonds initially located below, but close to, the eligibility frontier. In line with the theory, rating activity is concentrated precisely on the territory where the incentives of market participants are expected to be more sensitive to the policy design. Complementing the evidence on the effectiveness of non-standard measures, our findings contribute to better assessing the consequences of the explicit (but not exclusive) reliance on CRAs ratings by central banks when designing monetary policy. JEL Classification: E44, E52, E58, G24, G30

Keywords: Credit Rating Agencies; Monetary Policy (search for similar items in EconPapers)
Date: 2019-04
New Economics Papers: this item is included in nep-mon
Note: 1847506
References: Add references at CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Credit Rating Dynamics: Evidence from a Natural Experiment (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20192274

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