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Title: On the duration of sovereign ratings cycle phases
Authors: Agnello, Luca
Castro, Vitor
Sousa, Ricardo M.
Keywords: Duration analysis
Duration dependence
Sovereign ratings
Economic environment
Fiscal position
Quality of governance
Issue Date: 2019
Publisher: © Elsevier
Citation: AGNELLO, L., CASTRO, V. and SOUSA, R.M., 2019. On the duration of sovereign ratings cycle phases. Journal of Economic Behavior and Organization, doi:10.1016/j.jebo.2019.01.016.
Abstract: Using 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.
Description: This paper is closed access until 21 August 2020.
Sponsor: 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.
Version: Accepted for publication
DOI: 10.1016/j.jebo.2019.01.016
URI: https://dspace.lboro.ac.uk/2134/36831
Publisher Link: https://doi.org/10.1016/j.jebo.2019.01.016
ISSN: 0167-2681
Appears in Collections:Closed Access (Economics)

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