What “Hides” Behind Sovereign Debt Ratings?

Antonio Afonso, Pedro Gomes and Philipp Rother

No 2006/35, Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa

Abstract: In this paper we study the determinants of sovereign debt credit ratings using rating notations from the three main international rating agencies, for the period 1995-2005. We employ panel estimation and random effects ordered probit approaches to assess the explanatory power of several macroeconomic and public governance variables. Our results point to a good performance of the estimated models, across agencies and across the time dimension, as well as a good overall prediction power. Relevant explanatory variables for a country's credit rating are: GDP per capita, GDP growth, government debt, government effectiveness indicators, external debt, external reserves, and default history.

Keywords: credit ratings; sovereign debt; rating agencies; panel data; random effects ordered probit. (search for similar items in EconPapers)
JEL-codes: C23 C25 E44 F30 F34 G15 H63 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-dcm, nep-mac and nep-pbe
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Citations: View citations in EconPapers (16)

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Working Paper: What “hides” behind sovereign debt ratings? (2007)
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