We present a search theoretic model of over-the-counter debt with quantitative easing (QE). The impact of central bank asset purchases on yields depend on market tightness, which is determined by shares of preferred habitat investors. The model predicts that the impact of government bond purchases is higher in countries with a higher share of preferred habitat investors. Furthermore, there is a trade-off with liquidity, which is not present in other models of QE. We present a new index for the share of preferred habitat investors holding government bonds in Eurozone countries, based on the ECB's securities and holdings statistics, which we use to match the impact of QE on the observed yield changes in data and to test our model.
Abstract:This paper analyses the role of credit rating agencies in sovereign debt crises. Using a panel of 53 emerging and developing countries with annual data going back to 1977, the paper shows that credit ratings are not very good predictors of debt distress events once tested against a simple benchmark model with standard macroeconomic variables. Next, the paper turns to higher frequency data for a subset of countries to analyze the link between credit ratings and bond spreads. The results indicate that bond spreads react strongly to credit ratings, especially to downgrades in the non-investment grade category. The results are robust to a variety of additional tests. Keywords:Credit rating agencies, debt crises, fiscal policy, emerging market economies, developing countries, panel estimation. JEL Classification: E60, C33, C35 Résumé :Ce papier analyse le rôle des agences de notation dans les crises de la dette souveraine. Utilisant un panel de 53 pays émergents et en voie de développement avec des données annuelles depuis 1977, le papier montre que les notations de crédit ne sont pas de bons prédicteurs des événements de crédit lorsqu'on les compare à un simple modèle de référence comprenant des variables macroéconomiques usuelles. Dans un second temps, le papier utilise des données à plus haute fréquence pour un sousensemble de pays afin d'analyser le lien entre notations de crédit et spreads. Les résultats indiquent que les spreads réagissent fortement aux changements de notation, surtout lorsqu'elles ont lieu à la baisse et dans la catégorie « non-investissement ». Les résultats restent valides lorsqu'on les soumet à un ensemble de tests supplémentaires.Mots-clés : agences de notation, crises de la dette, politique budgétaire, marchés émergents, pays en voie de développement, économétrie des panels.
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