Citation

Discussion Paper Details

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Title: The Nonlinear Relationship Between Public Debt and Sovereign Credit Ratings

Author(s): Metodij Hadzi-Vaskov and Luca Antonio Ricci

Publication Date: September 2020

Keyword(s): Advanced economies, Credit rating agencies, Credit ratings, emerging markets, financial markets, non-linearities and public debt

Programme Area(s): Financial Economics, International Macroeconomics and Finance and Monetary Economics and Fluctuations

Abstract: This study investigates the relationship between public debt and sovereign credit ratings, using a wide sample of over 100 advanced, emerging, and developing economies. It finds that: i) higher public debt lowers the probability of being placed in a higher rating category; ii) the negative debt-ratings relationship is nonlinear and depends on the rating grade itself; and iii) the identified nonlinearity explains the differential impact of debt on ratings in advanced economies versus emerging and developing economies (previously suggested in the literature as different relationships). These results hold for both gross and net debt, and are robust to alternative dependent variable definitions, analytical techniques, and empirical specifications.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15267

Bibliographic Reference

Hadzi-Vaskov, M and Ricci, L. 2020. 'The Nonlinear Relationship Between Public Debt and Sovereign Credit Ratings'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15267