What 'Hides' Behind Sovereign Debt Ratings?

67 Pages Posted: 19 Jan 2007

See all articles by António Afonso

António Afonso

University of Lisbon - ISEG (School of Economics and Management); UECE (Research Unit on Complexity and Economics); ISEG Lisbon School of Economics and Management,Universidade de Lisboa

Pedro Gomes

University of London - Economics, Mathematics and Statistics; Universidad Carlos III de Madrid

Philipp Rother

European Central Bank (ECB)

Date Written: January 2007

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

JEL Classification: C23, C25, E44, F30, F34, G15, H63

Suggested Citation

Afonso, António and Gomes, Pedro M. and Rother, Philipp, What 'Hides' Behind Sovereign Debt Ratings? (January 2007). ECB Working Paper No. 711, Available at SSRN: https://ssrn.com/abstract=954705

António Afonso (Contact Author)

University of Lisbon - ISEG (School of Economics and Management) ( email )

R. Miguel Lupi, 20
Lisbon, 1248-078
Portugal
+351 21 392 5985 (Phone)
+351 21 396 6407 (Fax)

HOME PAGE: http://https://www.iseg.ulisboa.pt/aquila/homepage/aafonso

UECE (Research Unit on Complexity and Economics)

Rua Miguel Lupi 20
Lisbon, 1249-078
Portugal
+351-213 925 912 (Phone)
+351-213 971 196 (Fax)

HOME PAGE: http://https://uece.rc.iseg.ulisboa.pt/

ISEG Lisbon School of Economics and Management,Universidade de Lisboa ( email )

Rua do Quelhas 6
LISBOA, 1200-781
Portugal

Pedro M. Gomes

University of London - Economics, Mathematics and Statistics ( email )

United States

HOME PAGE: http://www.eco.uc3m.es/~pgomes/

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Philipp Rother

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 0 (Phone)
+49 16 1344 6398 (Fax)

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