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PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies

Gärtner, Manfred ; Griesbach, Björn ; Jung, Florian

In: International Advances in Economic Research, 2011, vol. 17, no. 3, p. 288-299

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    Titre
    • PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies
    Auteur
    • Gärtner, Manfred. Institute of Economics, School of Economics and Political Science, University of St. Gallen, Bodanstr. 1, CH-9000, St. Gallen, Switzerland
    • Griesbach, Björn. Institute of Economics, School of Economics and Political Science, University of St. Gallen, Bodanstr. 1, CH-9000, St. Gallen, Switzerland
    • Jung, Florian. Institute of Economics, School of Economics and Political Science, University of St. Gallen, Bodanstr. 1, CH-9000, St. Gallen, Switzerland
    Type de document
    • Postprint
    Langue
    • Anglais
    Publié dans
    • International Advances in Economic Research, 2011, vol. 17, no. 3, p. 288-299. Springer US; http://www.springer-ny.com
    Autre version électronique
    Identifiant OAI-PMH
    • oai:doc.rero.ch:316312
    Summary
    This paper asks whether rating agencies played a passive role or were an active driving force during Europe's sovereign debt crisis. We address this by estimating relationships between sovereign debt ratings and macroeconomic and structural variables. We then use these equations to decompose actual ratings into systematic and arbitrary components that are not explained by previously observed procedures of rating agencies. Finally, we check whether systematic, as well as arbitrary, parts of credit ratings affect credit spreads. We find that both do affect credit spreads, which opens the possibility that arbitrary rating downgrades trigger processes of self-fulfilling prophecies that may drive even relatively healthy countries towards default