Sovereign Ratings in the Post-Crisis World : An Analysis of Actual, Shadow and Relative Risk Ratings
This paper analyzes the evolution of sovereign credit ratings in the wake of the global financial crisis by studying changes in actual, shadow, and relative ratings between 2008 and 2012. For countries that do not have a rating from the major ratin...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2013/10/18360008/sovereign-ratings-post-crisis-world-analysis-actual-shadow-relative-risk-ratings http://hdl.handle.net/10986/16859 |
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okr-10986-16859 |
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| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
| language |
English en_US |
| topic |
ACCOUNTING ADVANCED ECONOMIES BANK POLICY BANKS BENCHMARK BENCHMARKS BOND RATINGS BOND YIELDS BORROWING COSTS CAPITAL ACCOUNT CAPITAL ACCOUNT LIBERALIZATION CAPITAL FLOWS CAPITAL INFLOWS CAPITAL MOBILITY CDS CONFLICT OF INTEREST CORPORATE FINANCE COUNTRY RISK CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT QUALITY CREDIT RATING CREDIT RATING AGENCIES CREDIT RATINGS CREDIT RISK CREDITWORTHINESS CURRENCY CURRENCY CRISES CYCLICAL FACTORS DATA AVAILABILITY DEBT DEBT CRISIS DEBT RATINGS DEBT RATIO DEBT RELIEF DEBT STOCKS DEFAULT RISK DEFAULTS DEPENDENT VARIABLE DEVELOPING COUNTRIES DEVELOPING ECONOMIES DEVELOPMENT ECONOMICS DEVELOPMENT FINANCE DEVELOPMENT POLICY DEVELOPMENT PROJECTS DOMESTIC FINANCIAL SECTOR ECONOMETRIC ANALYSIS ECONOMETRIC MODEL ECONOMIC CIRCUMSTANCES ECONOMIC DEVELOPMENT ECONOMIC OUTLOOK ECONOMIC PERFORMANCE ECONOMIC POLICY ECONOMIC STABILITY ECONOMIC STRENGTH EMERGING MARKET EMERGING MARKET ECONOMIES EMERGING MARKETS EXCHANGE RATE EXCHANGE RATES EXPLANATORY VARIABLES EXPORTS EXTERNAL DEBT FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE BANK OF NEW YORK FINANCIAL ANALYSIS FINANCIAL CRISIS FINANCIAL INTERMEDIARY FINANCIAL MARKETS FINANCIAL SECTOR FINANCIAL SECTOR DEVELOPMENT FINANCIAL STABILITY FOREIGN CURRENCY FOREIGN EXCHANGE FOREIGN EXCHANGE MARKETS FUTURE RESEARCH GDP GLOBAL CAPITAL GLOBAL CAPITAL MARKETS GLOBAL FINANCE GOLD GOVERNANCE INDICATORS GOVERNMENT BOND GOVERNMENT BOND YIELD GOVERNMENT DEBT GROSS DEBT GROSS NATIONAL INCOME GROWTH RATE HIGH-INCOME COUNTRIES IMPORT IMPORTS INCOME INDEBTEDNESS INDEX NUMBERS INFLATION INTERNATIONAL BANK INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKETS INTERNATIONAL DEBT INTERNATIONAL DEBT SECURITIES INTERNATIONAL MONEY INTERNATIONAL SETTLEMENTS INVESTMENT FLOWS LESS DEVELOPED COUNTRIES LIQUIDITY LOCAL CURRENCY MACRO-STABILITY MACROECONOMIC INSTABILITY MARKET INFORMATION MARKET PRICES MATHEMATICAL ECONOMICS MATURITIES MATURITY MIGRATION MISALIGNMENT MONETARY FUND NATIONAL INCOME POLICY CREDIBILITY POLITICAL DISTURBANCES PORTFOLIO POSITIVE EFFECTS POST-CRISIS PERIOD PRIVATE ENTITIES PUBLIC POLICY REMITTANCES REPUTATION RESERVE RESERVES RULE OF LAW SHADOW VALUES SHORT TERM DEBT SHORT-TERM DEBT SHORT-TERM EXTERNAL DEBT SOLVENCY SOVEREIGN BOND SOVEREIGN DEBT SOVEREIGN DEFAULT SOVEREIGN ENTITIES SOVEREIGN RATING SOVEREIGN RATINGS SOVEREIGN RISK STANDARD DEVIATION SUB-NATIONAL ENTITIES SUM OF IMPORTS SUSTAINABLE FINANCE TOTAL EXTERNAL DEBT TOTAL RESERVES TREASURY VOLATILITY WEIGHTS WELFARE ECONOMICS WORLD DEVELOPMENT INDICATORS WORLD ECONOMY YIELD SPREADS |
| spellingShingle |
ACCOUNTING ADVANCED ECONOMIES BANK POLICY BANKS BENCHMARK BENCHMARKS BOND RATINGS BOND YIELDS BORROWING COSTS CAPITAL ACCOUNT CAPITAL ACCOUNT LIBERALIZATION CAPITAL FLOWS CAPITAL INFLOWS CAPITAL MOBILITY CDS CONFLICT OF INTEREST CORPORATE FINANCE COUNTRY RISK CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT QUALITY CREDIT RATING CREDIT RATING AGENCIES CREDIT RATINGS CREDIT RISK CREDITWORTHINESS CURRENCY CURRENCY CRISES CYCLICAL FACTORS DATA AVAILABILITY DEBT DEBT CRISIS DEBT RATINGS DEBT RATIO DEBT RELIEF DEBT STOCKS DEFAULT RISK DEFAULTS DEPENDENT VARIABLE DEVELOPING COUNTRIES DEVELOPING ECONOMIES DEVELOPMENT ECONOMICS DEVELOPMENT FINANCE DEVELOPMENT POLICY DEVELOPMENT PROJECTS DOMESTIC FINANCIAL SECTOR ECONOMETRIC ANALYSIS ECONOMETRIC MODEL ECONOMIC CIRCUMSTANCES ECONOMIC DEVELOPMENT ECONOMIC OUTLOOK ECONOMIC PERFORMANCE ECONOMIC POLICY ECONOMIC STABILITY ECONOMIC STRENGTH EMERGING MARKET EMERGING MARKET ECONOMIES EMERGING MARKETS EXCHANGE RATE EXCHANGE RATES EXPLANATORY VARIABLES EXPORTS EXTERNAL DEBT FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE BANK OF NEW YORK FINANCIAL ANALYSIS FINANCIAL CRISIS FINANCIAL INTERMEDIARY FINANCIAL MARKETS FINANCIAL SECTOR FINANCIAL SECTOR DEVELOPMENT FINANCIAL STABILITY FOREIGN CURRENCY FOREIGN EXCHANGE FOREIGN EXCHANGE MARKETS FUTURE RESEARCH GDP GLOBAL CAPITAL GLOBAL CAPITAL MARKETS GLOBAL FINANCE GOLD GOVERNANCE INDICATORS GOVERNMENT BOND GOVERNMENT BOND YIELD GOVERNMENT DEBT GROSS DEBT GROSS NATIONAL INCOME GROWTH RATE HIGH-INCOME COUNTRIES IMPORT IMPORTS INCOME INDEBTEDNESS INDEX NUMBERS INFLATION INTERNATIONAL BANK INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKETS INTERNATIONAL DEBT INTERNATIONAL DEBT SECURITIES INTERNATIONAL MONEY INTERNATIONAL SETTLEMENTS INVESTMENT FLOWS LESS DEVELOPED COUNTRIES LIQUIDITY LOCAL CURRENCY MACRO-STABILITY MACROECONOMIC INSTABILITY MARKET INFORMATION MARKET PRICES MATHEMATICAL ECONOMICS MATURITIES MATURITY MIGRATION MISALIGNMENT MONETARY FUND NATIONAL INCOME POLICY CREDIBILITY POLITICAL DISTURBANCES PORTFOLIO POSITIVE EFFECTS POST-CRISIS PERIOD PRIVATE ENTITIES PUBLIC POLICY REMITTANCES REPUTATION RESERVE RESERVES RULE OF LAW SHADOW VALUES SHORT TERM DEBT SHORT-TERM DEBT SHORT-TERM EXTERNAL DEBT SOLVENCY SOVEREIGN BOND SOVEREIGN DEBT SOVEREIGN DEFAULT SOVEREIGN ENTITIES SOVEREIGN RATING SOVEREIGN RATINGS SOVEREIGN RISK STANDARD DEVIATION SUB-NATIONAL ENTITIES SUM OF IMPORTS SUSTAINABLE FINANCE TOTAL EXTERNAL DEBT TOTAL RESERVES TREASURY VOLATILITY WEIGHTS WELFARE ECONOMICS WORLD DEVELOPMENT INDICATORS WORLD ECONOMY YIELD SPREADS Basu, Kaushik De, Supriyo Ratha, Dilip Timmer, Hans Sovereign Ratings in the Post-Crisis World : An Analysis of Actual, Shadow and Relative Risk Ratings |
| geographic_facet |
Africa East Asia and Pacific Europe and Central Asia |
| relation |
Policy Research Working Paper;No. 6641 |
| description |
This paper analyzes the evolution of
sovereign credit ratings in the wake of the global financial
crisis by studying changes in actual, shadow, and relative
ratings between 2008 and 2012. For countries that do not
have a rating from the major rating agencies, shadow ratings
are estimated as a function of macroeconomic, structural,
and governance variables. The shadow rating exercise
confirms earlier findings in the literature that even after
the financial crisis, many unrated countries appear to be
more creditworthy than previously believed and can access
international capital markets. The paper also develops a new
rating scale called the "relative risk rating,"
which ranks countries according to their actual or shadow
ratings after controlling for changes in the world weighted
average rating. When relative ratings in 2012 are compared
with the first half of 2008, the world average rating is
found to be weaker because of the financial crisis. The
relative rating improved in developing economies such as
Azerbaijan, Ethiopia, Kazakhstan, Indonesia, and the
Philippines, whereas it deteriorated in crisis-affected
high-income countries such as Cyprus, Greece, Spain,
Portugal, Ireland, and Egypt. Interestingly, India, Jordan,
Poland, and the United Kingdom had their rating outlook
downgraded by the rating agencies, but their relative rating
actually improved as other countries suffered even worse
downgrades. A regression model is used to analyze the
relative contributions of different variables to rating
changes during 2008-2012, a helpful feature for policy
makers interested in improving sovereign ratings. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Basu, Kaushik De, Supriyo Ratha, Dilip Timmer, Hans |
| author_facet |
Basu, Kaushik De, Supriyo Ratha, Dilip Timmer, Hans |
| author_sort |
Basu, Kaushik |
| title |
Sovereign Ratings in the Post-Crisis World : An Analysis of Actual, Shadow and Relative Risk Ratings |
| title_short |
Sovereign Ratings in the Post-Crisis World : An Analysis of Actual, Shadow and Relative Risk Ratings |
| title_full |
Sovereign Ratings in the Post-Crisis World : An Analysis of Actual, Shadow and Relative Risk Ratings |
| title_fullStr |
Sovereign Ratings in the Post-Crisis World : An Analysis of Actual, Shadow and Relative Risk Ratings |
| title_full_unstemmed |
Sovereign Ratings in the Post-Crisis World : An Analysis of Actual, Shadow and Relative Risk Ratings |
| title_sort |
sovereign ratings in the post-crisis world : an analysis of actual, shadow and relative risk ratings |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2013/10/18360008/sovereign-ratings-post-crisis-world-analysis-actual-shadow-relative-risk-ratings http://hdl.handle.net/10986/16859 |
| _version_ |
1764434721115209728 |
| spelling |
okr-10986-168592021-04-23T14:03:32Z Sovereign Ratings in the Post-Crisis World : An Analysis of Actual, Shadow and Relative Risk Ratings Basu, Kaushik De, Supriyo Ratha, Dilip Timmer, Hans ACCOUNTING ADVANCED ECONOMIES BANK POLICY BANKS BENCHMARK BENCHMARKS BOND RATINGS BOND YIELDS BORROWING COSTS CAPITAL ACCOUNT CAPITAL ACCOUNT LIBERALIZATION CAPITAL FLOWS CAPITAL INFLOWS CAPITAL MOBILITY CDS CONFLICT OF INTEREST CORPORATE FINANCE COUNTRY RISK CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT QUALITY CREDIT RATING CREDIT RATING AGENCIES CREDIT RATINGS CREDIT RISK CREDITWORTHINESS CURRENCY CURRENCY CRISES CYCLICAL FACTORS DATA AVAILABILITY DEBT DEBT CRISIS DEBT RATINGS DEBT RATIO DEBT RELIEF DEBT STOCKS DEFAULT RISK DEFAULTS DEPENDENT VARIABLE DEVELOPING COUNTRIES DEVELOPING ECONOMIES DEVELOPMENT ECONOMICS DEVELOPMENT FINANCE DEVELOPMENT POLICY DEVELOPMENT PROJECTS DOMESTIC FINANCIAL SECTOR ECONOMETRIC ANALYSIS ECONOMETRIC MODEL ECONOMIC CIRCUMSTANCES ECONOMIC DEVELOPMENT ECONOMIC OUTLOOK ECONOMIC PERFORMANCE ECONOMIC POLICY ECONOMIC STABILITY ECONOMIC STRENGTH EMERGING MARKET EMERGING MARKET ECONOMIES EMERGING MARKETS EXCHANGE RATE EXCHANGE RATES EXPLANATORY VARIABLES EXPORTS EXTERNAL DEBT FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE BANK OF NEW YORK FINANCIAL ANALYSIS FINANCIAL CRISIS FINANCIAL INTERMEDIARY FINANCIAL MARKETS FINANCIAL SECTOR FINANCIAL SECTOR DEVELOPMENT FINANCIAL STABILITY FOREIGN CURRENCY FOREIGN EXCHANGE FOREIGN EXCHANGE MARKETS FUTURE RESEARCH GDP GLOBAL CAPITAL GLOBAL CAPITAL MARKETS GLOBAL FINANCE GOLD GOVERNANCE INDICATORS GOVERNMENT BOND GOVERNMENT BOND YIELD GOVERNMENT DEBT GROSS DEBT GROSS NATIONAL INCOME GROWTH RATE HIGH-INCOME COUNTRIES IMPORT IMPORTS INCOME INDEBTEDNESS INDEX NUMBERS INFLATION INTERNATIONAL BANK INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKETS INTERNATIONAL DEBT INTERNATIONAL DEBT SECURITIES INTERNATIONAL MONEY INTERNATIONAL SETTLEMENTS INVESTMENT FLOWS LESS DEVELOPED COUNTRIES LIQUIDITY LOCAL CURRENCY MACRO-STABILITY MACROECONOMIC INSTABILITY MARKET INFORMATION MARKET PRICES MATHEMATICAL ECONOMICS MATURITIES MATURITY MIGRATION MISALIGNMENT MONETARY FUND NATIONAL INCOME POLICY CREDIBILITY POLITICAL DISTURBANCES PORTFOLIO POSITIVE EFFECTS POST-CRISIS PERIOD PRIVATE ENTITIES PUBLIC POLICY REMITTANCES REPUTATION RESERVE RESERVES RULE OF LAW SHADOW VALUES SHORT TERM DEBT SHORT-TERM DEBT SHORT-TERM EXTERNAL DEBT SOLVENCY SOVEREIGN BOND SOVEREIGN DEBT SOVEREIGN DEFAULT SOVEREIGN ENTITIES SOVEREIGN RATING SOVEREIGN RATINGS SOVEREIGN RISK STANDARD DEVIATION SUB-NATIONAL ENTITIES SUM OF IMPORTS SUSTAINABLE FINANCE TOTAL EXTERNAL DEBT TOTAL RESERVES TREASURY VOLATILITY WEIGHTS WELFARE ECONOMICS WORLD DEVELOPMENT INDICATORS WORLD ECONOMY YIELD SPREADS This paper analyzes the evolution of sovereign credit ratings in the wake of the global financial crisis by studying changes in actual, shadow, and relative ratings between 2008 and 2012. For countries that do not have a rating from the major rating agencies, shadow ratings are estimated as a function of macroeconomic, structural, and governance variables. The shadow rating exercise confirms earlier findings in the literature that even after the financial crisis, many unrated countries appear to be more creditworthy than previously believed and can access international capital markets. The paper also develops a new rating scale called the "relative risk rating," which ranks countries according to their actual or shadow ratings after controlling for changes in the world weighted average rating. When relative ratings in 2012 are compared with the first half of 2008, the world average rating is found to be weaker because of the financial crisis. The relative rating improved in developing economies such as Azerbaijan, Ethiopia, Kazakhstan, Indonesia, and the Philippines, whereas it deteriorated in crisis-affected high-income countries such as Cyprus, Greece, Spain, Portugal, Ireland, and Egypt. Interestingly, India, Jordan, Poland, and the United Kingdom had their rating outlook downgraded by the rating agencies, but their relative rating actually improved as other countries suffered even worse downgrades. A regression model is used to analyze the relative contributions of different variables to rating changes during 2008-2012, a helpful feature for policy makers interested in improving sovereign ratings. 2014-02-04T16:43:23Z 2014-02-04T16:43:23Z 2013-10 http://documents.worldbank.org/curated/en/2013/10/18360008/sovereign-ratings-post-crisis-world-analysis-actual-shadow-relative-risk-ratings http://hdl.handle.net/10986/16859 English en_US Policy Research Working Paper;No. 6641 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Africa East Asia and Pacific Europe and Central Asia |