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PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies

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version abrégée This paper asks whether rating agencies played a passive role or were an active driving force during Europe’s sovereign debt crisis. We address this by estimating relationships between sovereign debt ratings and macroeconomic and structural variables. We then use these equations to decompose actual ratings into systematic and arbitrary components that are not explained by previously observed procedures of rating agencies. Finally, we check whether systematic, as well as arbitrary, parts of credit ratings affect credit spreads. We find that both do affect credit spreads, which opens the possibility that arbitrary rating downgrades trigger processes of self-fulfilling prophecies that may drive even relatively healthy countries towards default.

(A Working Paper Version is available at http://ideas.repec.org/p/usg/econwp/201106.html)
   
Genre Journal paper
   
mot-clé Rating agencies, Sovereign debt, Credit risk, Eurozone, Panel data, Debt crisis
   
Projet The role of rating agencies in the Eurozone sovereign debt crisis
langue English
kind of paper journal article
date de sortie de la publication 1-8-2011
journal International Advances in Economic Research
maison d'édition Springer (US)
ISSN 1083-0898
ISSN (online) 1573-966X
DOI 10.1007/s11294-011-9302-7
émission du journal 17
numéro du journal 3
page(s) 288-299
Review pas de Review
   
citation Gärtner, M., Griesbach, B., & Jung, F. (2011). PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies. International Advances in Economic Research, 17(3), 288-299, DOI:10.1007/s11294-011-9302-7.