Sovereign Credit Rating and the New EU Member States
Posted: 10 Jul 2013
Date Written: February 4, 2013
The paper analyses the factors influencing the sovereign credit ratings of the new EU member states along with potential entrants. We model the ratings of the three rating agencies using a range of macroeconomic and governance variables and panel regression techniques. The unbalanced panel consists of ratings on 14 countries over the years 1993 to 2012. In addition to the variations across ratings agencies, the panel includes other interesting variations. Thus the panel includes the pre and post crisis period, country entry point into the EU and the timing of entry into the Eurozone. The rating of these countries is therefore particularly challenging against the background of shifting policy initiatives of member states. We focus on the main factors that drive ratings for these countries, their relative importance, the predictive accuracy of the models, agency consistency and compare the results with the findings of previous studies. We find that the political stances (or changes in) and geographic location (trading partners) of countries are important factors determining ratings in more turbulent periods.
Keywords: sovereign credit rating, rating agencies, new members of European Union, random effects
JEL Classification: E27, C44
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