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

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

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 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 or http://dx.doi.org/10.2139/ssrn.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

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

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

United States

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

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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