LA_VC_RMS_ratings.pdf (438.93 kB)
On the duration of sovereign ratings cycle phases
journal contribution
posted on 2019-02-08, 09:26 authored by Luca Agnello, Vitor CastroVitor Castro, Ricardo M. SousaUsing long-term sovereign ratings data for a panel of 130 countries over the last three decades, we investigate the duration and determinants of sovereign rating phases through the lens of discrete-time Weibull models. We find that the likelihood of the end of the 'speculative-grade' phase increases as time goes by (i.e. there is positive duration dependence), but the 'investment-grade' phase is not duration dependent. Thus, for sovereigns rated as speculative, the build-up of reputation as good borrowers is a gradual process, whereas the reputation of investment-grade sovereigns solidifies and remains unchanged as time passes. However, the length of both phases significantly depends on the country's economic
conditions. In particular, lower inflation, stronger growth and sounder fiscal policies shorten (prolong) the speculative- (investment-) grade phase. In addition, better governance quality helps to reduce the duration of speculative-grade phases.
Funding
NIPE's work is carried out within the funding with COMPETE reference nº POCI-01-0145-FEDER-006683, with the FCT/MEC's (Fundacao para a Ciencia e Tecnologia, I.P.) financial support through national funding and by the ERDF through the Operational Programme on "Competitiveness and Internationalization - COMPETE 2020" under the PT2020 Partnership Agreement.
History
School
- Business and Economics
Department
- Economics
Published in
Journal of Economic Behavior and OrganizationVolume
182Pages
512 - 526Citation
AGNELLO, L., CASTRO, V. and SOUSA, R.M., 2021. On the duration of sovereign ratings cycle phases. Journal of Economic Behavior and Organization, 182, pp.512-526.Publisher
© ElsevierVersion
- AM (Accepted Manuscript)
Publisher statement
This paper was accepted for publication in the journal Journal of Economic Behavior and Organization and the definitive published version is available at https://doi.org/10.1016/j.jebo.2019.01.016Acceptance date
2019-01-27Publication date
2019-02-21Copyright date
2019ISSN
0167-2681Publisher version
Language
- en