The Nonlinear Relationship between Public Debt and Sovereign Credit Ratings

38 Pages Posted: 22 Sep 2020

See all articles by Metodij Hadzi-Vaskov

Metodij Hadzi-Vaskov

International Monetary Fund (IMF)

Luca A. Ricci

International Monetary Fund (IMF) - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: September 2020

Abstract

This study investigates the relationship between public debt and sovereign credit ratings, using a wide sample of over 100 advanced, emerging, and developing economies. It finds that: i) higher public debt lowers the probability of being placed in a higher rating category; ii) the negative debt-ratings relationship is nonlinear and depends on the rating grade itself; and iii) the identified nonlinearity explains the differential impact of debt on ratings in advanced economies versus emerging and developing economies (previously suggested in the literature as different relationships). These results hold for both gross and net debt, and are robust to alternative dependent variable definitions, analytical techniques, and empirical specifications.

Keywords: Advanced economies, Credit rating agencies, Credit ratings, emerging markets, financial markets, non-linearities, public debt

JEL Classification: E44, E62, G15, G24

Suggested Citation

Hadzi-Vaskov, Metodij and Ricci, Luca Antonio, The Nonlinear Relationship between Public Debt and Sovereign Credit Ratings (September 2020). CEPR Discussion Paper No. DP15267, Available at SSRN: https://ssrn.com/abstract=3696347

Metodij Hadzi-Vaskov (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Luca Antonio Ricci

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6007 (Phone)
202-623-4072 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
0
Abstract Views
72
PlumX Metrics