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Title: Sovereign credit ratings in the European Union: a model-based fiscal analysis

Author(s): Vito Polito and Michael R. Wickens

Publication Date: September 2013

Keyword(s): credit risk, default probability, fiscal policy and sovereign risk

Programme Area(s): International Macroeconomics

Abstract: We propose a model-based measure of sovereign credit ratings derived solely from the fiscal position of a country: a forecast of its future debt liabilities, and its potential to use tax policy to repay these. We use this measure to calculate credit ratings for fourteen European countries over the period 1995-2012. This measure identifies a European sovereign debt crisis almost two years before the official ratings of the credit rating agencies.

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Bibliographic Reference

Polito, V and Wickens, M. 2013. 'Sovereign credit ratings in the European Union: a model-based fiscal analysis'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9665