Sovereign Credit Ratings Methodology: An Evaluation

Ashok Bhatia

No 2002/170, IMF Working Papers from International Monetary Fund

Abstract: This paper describes and evaluates the sovereign credit ratings methodologies of Standard & Poor's, Moody's Investors Service, and Fitch Ratings. A simple definition of ratings failure-based on ratings stability-is proposed and tested, pointing to falling failure rates, consistent upside bias, and strong interagency correlation. Possible causes of ratings failure are separated into informational, analytical, revenue bias, and other incentive problems, each of which is discussed. The paper seeks to highlight methodological developments after the Asian crisis, particularly with regard to the estimation of contingent liabilities and the assessment of international reserves adequacy.

Keywords: WP; foreign currency; ratings failure; financial system; short-term debt; sovereign rating; Credit ratings; debt; early warning; risk; sovereign; vulnerability; private sector; unsecured debt; ratings agency; central bank; Currencies; International bonds; Global; South America; ratings category; A. ratings definition; ratings history; failure statistics; S&P local; issuer rating (search for similar items in EconPapers)
Pages: 60
Date: 2002-10-01
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Citations: View citations in EconPapers (53)

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