Sovereign Credit Ratings Methodology: An Evaluation
IMF Working Papers, October 1, 2002
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- Sovereign Credit Ratings Methodology: An Evaluation
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Bibliographic details
- Authors: Ashok Vir Bhatia
- Published: October 1, 2002
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451858433.001
Summary
- Paper describes and evaluates sovereign credit ratings methodologies of Standard & Poor's, Moody's Investors Service, and Fitch Ratings.
- Proposes and tests a simple definition of ratings failure based on ratings stability.
- Empirical findings point to:
- falling failure rates,
- consistent upside bias,
- strong interagency correlation.
- Possible causes of ratings failure are separated into informational, analytical, revenue bias, and other incentive problems; each category is discussed.
- Highlights methodological developments after the Asian crisis, particularly regarding:
- the estimation of contingent liabilities,
- the assessment of international reserves adequacy.
Key findings and observations
- Ratings failure definition: based on ratings stability (simple operational definition used and tested in the paper).
- Empirical patterns identified:
- falling failure rates,
- a consistent upside bias in ratings,
- strong correlation across ratings agencies (interagency correlation).
Possible causes of ratings failure (as categorized in the paper)
- Informational problems.
- Analytical problems.
- Revenue bias.
- Other incentive problems.
Methodological developments emphasized
- Post-Asian crisis improvements in:
- estimation of contingent liabilities,
- assessment of international reserves adequacy.
Content in this bundle
- Sovereign Credit Ratings Methodology: An Evaluation - WP/02/170