No abstract

Rating agencies, Sovereign debt, Credit risk, Eurozone, Panel data, Debt crisis, G24, H63, F34,

We explore whether governments may have faced scenarios of self-fulfilling prophecy and multiple equilibria during Europe"s sovereign debt crisis. To this end, we estimate the effect of interest rates and other macroeconomic variables on sovereign debt ratings, and of ratings on interest rates. We detect a nonlinear effect of ratings on interest rates which is strong enough to permit multiple equilibria. The good equilibrium is stable, ratings are excellent and interest rates are low. A second unstable equilibrium marks a threshold beyond which the country slides towards an insolvency trap. Coefficient estimates suggest that countries should stay well within the A segment of the rating scale in order to remain safe from being driven towards default.

No abstract

The global financial crisis triggered different policy responses in Europe and the United States. Interestingly, survey results suggest that there is also a significant difference in how undergraduate macroeconomics instructors responded to the crisis, with U.S. instructors placing significantly more emphasis on financial topics than their European peers. This note considers whether such differences may be attributed to differences in instructors' profiles and teaching environments. The results suggest that, rather than explaining this gap, the transatlantic divide becomes even wider when analyzed in a multivariate setting.