Cover IMF Working Papers
The Nonlinear Relationship Between Public Debt and Sovereign Credit Ratings
Author:
Metodij Hadzi-Vaskov
Search for other papers by Metodij Hadzi-Vaskov in
Current site
Google Scholar
PubMedClose
and
Mr. Luca A Ricci
Search for other papers by Mr. Luca A Ricci in
Current site
Google Scholar
PubMedClose
Series:
IMF Working Papers
Volume/Issue:
Volume 2019: Issue 162
Language:
English
Publication Date:
26 Jul 2019
DOI:
https://doi.org/10.5089/9781498325059.001
ISBN:
9781498325059
ISSN:
1018-5941
Pages:
37
Keywords:
WP; rating category; LIG rating; GDP growth; debt-ratings relationship; panel regression; rating grade; Credit ratings; Public debt; Credit rating agencies; Financial markets; Advanced economies; Emerging markets; Non-linearities; NIG rating; credit rating grade; High-Investment Grade; Inflation; Global; Europe; Asia and Pacific; North Africa; Sub-Saharan Africa
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (1.9 MB) Download Epub
This study investigates the nonlinear relationship between public debt and sovereign credit ratings, using a wide sample of over one hundred 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 in emerging markets and developing economies. These results hold for both gross debt and net debt, and are robust to alternative dependent variable definitions, analytical techniques, and empirical specifications. These findings underscore the potential for fiscal consolidation in helping countries achieve a better credit rating.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2019: Issue 162