Macroeconomics and Sovereign Risk Ratings

Abstract

The objective of this paper is to analyze the concept and determinants of "sovereign risk" and the role of the credit risk rating agencies which serve internationally as the main reference instruments employed by economic agents to assess this risk. The paper also tries to identify macroeconomic variables which could be associated with sovereign risk ratings awarded by rating agencies to each country. After examining the indicators on an individual basis, their potential as a group is tested econometrically as a determinant of the class of sovereign risk into which national economies fall. Our results constitute a set of indicators which emerging economies would be well advised to improve upon.

An Empirical Assessment of Sovereign Country Risk in the Black Sea Region

“…The use of GDP per capita, indicating the wealth of people in an economy, prevails in the literature and is found almost always to be significant in capturing variation in sovereign ratings. In addition, GDP growth and inflation are often taken into consideration (Cantor and Packer 1996;Mulder and Perrelli 2001;Rowland 2004;Bennell et al 2006;Afonso 2003;Archer et al 2007;Canuto et al 2012). Another focal point of the researchers who attempt to assess CRA ratings are a country's debt metrics.…”

“…Another focal point of the researchers who attempt to assess CRA ratings are a country's debt metrics. Although past studies focused on external debt measures, in the aftermath of the sovereign-debt crisis, particularly in the Eurozone, there is a trend to monitor public debt (Powell and Martinez 2008;Jaramillo 2010;Afonso et al 2011;Gärtner et al 2011;Canuto et al 2012). In addition to these frequently observed indicators, other variables such as the openness of an economy, the current account balance and the reserves position receive mention in a limited number of studies.…”

“…The most frequently used variables to assess sociopolitical aspects of credit ratings include government effectiveness (Powell and Martinez 2008;Afonso et al 2007Afonso et al , 2011, corruption (Mellios and Paget-Blanc 2006) and political stability (Afonso et al 2007(Afonso et al , 2011Archer et al 2007;Powell and Martinez 2008;Jaramillo 2010). Dummy variables are also used in the relevant literature to account for sovereign defaults (Cantor and Packer 1996;Mellios and Paget-Blanc 2006;Archer et al 2007;Powell and Martinez 2008;Afonso 2003Afonso , 2007Afonso and 2011Canuto et al 2012). Similar is the case with indicators of membership in a group of countries that shares common characteristics such as the EU and Latin America (Afonso et al 2007;Powell and Martinez 2008;Gärtner et al 2011) and development level indices.…”

“…Similar is the case with indicators of membership in a group of countries that shares common characteristics such as the EU and Latin America (Afonso et al 2007;Powell and Martinez 2008;Gärtner et al 2011) and development level indices. Both types of indices appear in studies which incorporate a diverse sample of countries (Cantor and Packer 1996;Afonso 2003;Bennell et al 2006;Powell and Martinez 2008;Canuto et al 2012).…”

The Effects of the Macroeconomic Determinants on Sovereign Credit Rating of Turkey

“…The Standard & Poor's points model contains ten categories; however, it can be consolidated into five main categories (Canuto, Dos Santos, and de Sá Porto, 2012). These five broad categories that form the basis of sovereign credit rating analysis of Standard & Poor's are as follows (Dimitrijevic, et al, 2011): On the other hand, Moody's has over 50 indicators and ratios available.…”