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PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies
Series
Economics Working Paper Series
Type
discussion paper
Date Issued
2011-03-28
Author(s)
Abstract
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
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[http://ideas.repec.org/p/usg/econwp/201106.html#abstract
Volltext herunterladen]
Language
English
Keywords
Sovereign debt ratings
sovereign default
debt crisis
budget deficit
rating agencies
PIGS
risk premiums
government bond spreads
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Economic Policy
Refereed
No
Publisher
School of Economics and Political Science
Publisher place
University of St. Gallen
Number
1106
Start page
20
Subject(s)
Division(s)
Eprints ID
84782