Macroeconomics Determinants of Sovereign Credit Ratings

Abstract

The objective of this paper is to identify the determinants of sovereign credit rating. This study including 53 countries in the study covers from year 2000 to 2011. This study examines nine macroeconomic variables and extended by using three qualitative variables, i.e., history of default, economic development and economic freedom. The results are consistent with previous studies that some macroeconomics variables are determinants of rating. Furthermore, the economic freedom variable serves as a vital factor in determining sovereign credit rating that has been overlooked by the previous studies. This study has added new findings and indicates that the economic freedom of country is decisive factor in assessment.

The Visegrád Group Countries’ Ratings – Do the Credit Rating Agencies Make the Decisions Independently or Piggyback Themselves?

“…Political stability, voice of people, corruption control, government's effectiveness, regulatory quality were also identified by Butler and Fauver (2006) as significant determinants of sovereign ratings. This was confirmed by Chee, Fah and Nassir (2015) who analysed 53 countries in the period between 2000 and 2011 and found economic freedom (besides identified in earlier studies other qualitative variables like default history and economic development indicator) as a material factor having impact on credit rating. The similar results achieved Kabadayi and Celik (2015) Moody's Fitch Ratings) for the period between 1993 and 2009.…”

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

“…According to the results of the study, two macroeconomic variables, GDP growth and unemployment, have a high explanatory power on credit ratings of Latvia. Chee, Fah and Nassir (2015) examine the determinants of sovereign credit rating. Their study includes 53 countries and covers the period of 2000-2011.…”

“…The sovereign credit rating criteria include a combination of several quantitative and qualitative variables (Mellios and Paget-Blanc, 2006;Chee, Fah and Nassir, 2015). In the statements of the credit rating agencies on rating criteria, they take into account many economic, social, and political determinants that underlie their sovereign credit ratings.…”

Determinants of credit ratings: evidence from panel discrete model

“…There are three major rating agencies, Fitch, Moody's and S&P. They control more than 90 % of the market. In order to assign a credit rating these agencies employ lots of quantitative and qualitative variables (Chee et al, 2015). So it is important to identify key determinants of sovereign ratings.…”