Sovereign Credit Ratings Methodology: An Evaluation

October 1, 2002

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Ashok Vir Bhatia. Sovereign Credit Ratings Methodology: An Evaluation, (USA: International Monetary Fund, 2002) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper describes and evaluates the sovereign credit ratings methodologies of Standard & Poor's, Moody's Investors Service, and Fitch Ratings. A simple definition of ratings failure-based on ratings stability-is proposed and tested, pointing to falling failure rates, consistent upside bias, and strong interagency correlation. Possible causes of ratings failure are separated into informational, analytical, revenue bias, and other incentive problems, each of which is discussed. The paper seeks to highlight methodological developments after the Asian crisis, particularly with regard to the estimation of contingent liabilities and the assessment of international reserves adequacy.

Subject: Credit ratings, Currencies, External debt, Financial institutions, International bonds, Money, Public debt

Keywords: A. ratings definition, Central bank, Credit ratings, Currencies, Debt, Early warning, Failure statistics, Financial system, Foreign currency, Global, International bonds, Issuer rating, Private sector, Ratings agency, Ratings category, Ratings failure, Ratings history, Risk, S&P local, Short-term debt, South America, Sovereign, Sovereign rating, Unsecured debt, Vulnerability, WP

Publication Details

Pages:

60
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/170
Stock No:

WPIEA1702002
ISBN:

9781451858433
ISSN:

1018-5941

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