The role of rating agencies in the Eurozone sovereign debt crisis
Type
applied research project
Start Date
October 1, 2010
End Date
July 31, 2014
Status
ongoing
Keywords
rating agencies
sovereign debt
crisis
multiple equilibria
self-fulfilling prophecy
interest rates
spreads
budget deficit
Description
The project attempts to provide an empirical understanding of the role of rating agencies in sovereign debt crises in general, and in the Eurozone's sovereign debt crisis in particular. It looks both at what determines sovereign bond ratings, and at the effects of rating changes. From a macroeconomic perspective we try to find out whether Europe faced a scenario of multiple equilibria and self-fulfilling prophecy, and how rating agencies affected the dynamics within such a system.
Leader contributor(s)
Member contributor(s)
Funder
Topic(s)
rating agencies
models of sovereign debt crises
Method(s)
theoretical analysis
statistical and narrative empirics
Range
Institute/School
Range (De)
Institut/School
Division(s)
Eprints ID
212380
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Item type:Publication, Integrity of ratings agencies questioned : Interview with Matthew AllenDebt-laden European countries have been given a rough ride and pushed further into trouble by the questionable actions of ratings agencies, according to a study on how sovereign credit worthiness is calculated. Researchers at St Gallen University believe that the big three agencies have at best made mistakes in rating countries such as Greece and Spain, and in the worst case scenario systematically and deliberately manipulated the markets. - Some of the metrics are blocked by yourconsent settings
Item type:Publication, Rating agencies, self-fulfilling prophecy and multiple equilibria? : An empirical model of the European sovereign debt crisis 2009-2011We explore whether experiences during Europe's sovereign debt crisis support the notion that governments faced scenarios of self-fulfilling prophecy and multiple equilibria. To this end, we provide estimates of the effect of interest rates and other macroeconomic variables on sovereign debt ratings, and estimates of how ratings bear on interest rates. We detect a nonlinear effect of ratings on interest rates which is strong enough to generate multiple equilibria. The good equilibrium is stable, ratings are excellent and interest rates are low. A second unstable equilibrium marks a threshold beyond which the country falls into an insolvency trap from which it may only escape by exogenous intervention. Coefficient estimates suggest that countries should stay well within the A section of the rating scale in order to remain reasonably safe from being driven into eventual default. [http://ideas.repec.org/p/usg/econwp/201215.html Volltext herunterladen]Type:discussion paperIssue:2012-15 - Some of the metrics are blocked by yourconsent settings
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Item type:Publication, Ratingagenturen behandelten Griechenland willkürlich : Interview mit Nicos ChilasType:newspaper articleJournal:To VimaVolume:50Issue:50 - Some of the metrics are blocked by yourconsent settings
Item type:Publication, Tougher euro debt ratings stoke downward spiral -study : Interview with Emma ThomassonCredit rating agencies have fuelled rising euro zone indebtedness by issuing more severe downgrades since the sovereign debt crisis unfolded in 2009, a study by economists at St Gallen university said. - Some of the metrics are blocked by yourconsent settings
Item type:Publication, PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies(School of Economics and Political Science, 2011-03-28); ; 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 equ-ations to decompose actual ratings into systematic and arbitrary components that are not explained by observed previous procedures of rating agencies. Next, we check whether both systematic and arbitrary parts of credit ratings affect credit spreads. We find that both do, which opens the possibility that arbitrary rating downgrades trigger processes of self-fulfilling prophecy that may drive even relatively healthy countries towards default. [http://ideas.repec.org/p/usg/econwp/201106.html#abstract Volltext herunterladen]Type:discussion paperIssue:1106 - Some of the metrics are blocked by yourconsent settings
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