{
  "title": "The Nonlinear Relationship Between Public Debt and Sovereign Credit Ratings",
  "publication": "IMF Working Papers, July 26, 2019",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2019/07/26/the-nonlinear-relationship-between-public-debt-and-sovereign-credit-ratings-47090",
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  "summary": "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.",
  "sections": [
    {
      "heading": "Summary findings",
      "content": "- The 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.\n- Key empirical findings:\n  - i) higher public debt lowers the probability of being placed in a higher rating category;\n  - ii) the negative debt-ratings relationship is nonlinear and depends on the rating grade itself;\n  - iii) the identified nonlinearity explains the differential impact of debt on ratings in advanced economies versus in emerging markets and developing economies.\n- Results hold for both gross debt and net debt.\n- Results are robust to alternative dependent variable definitions, analytical techniques, and empirical specifications.\n- Policy-relevant conclusion: these findings underscore the potential for fiscal consolidation in helping countries achieve a better credit rating."
    },
    {
      "heading": "Robustness, scope, and methodology highlights",
      "content": "- Sample: over one hundred advanced, emerging, and developing economies.\n- Dependent variables and specifications: findings robust across alternative dependent variable definitions, analytical techniques, and empirical specifications.\n- Debt measures: both gross debt and net debt produce consistent results.\n- Nonlinearity: relationship varies by rating grade, producing differential effects across country groups (advanced economies versus emerging markets and developing economies)."
    },
    {
      "heading": "Policy implications and interpretation",
      "content": "- Fiscal consolidation can potentially improve sovereign credit ratings, given the documented negative and nonlinear relationship between public debt and ratings.\n- The nonlinear dependence on rating grade implies that the marginal effect of debt reduction on the probability of moving to a higher rating category varies across rating levels and across country groups.\n\nMetodij Hadzi-Vaskov and Luca A Ricci, \"The Nonlinear Relationship Between Public Debt and Sovereign Credit Ratings\", IMF Working Papers 2019, 162 (July 26, 2019).\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2019/07/26/the-nonlinear-relationship-between-public-debt-and-sovereign-credit-ratings-47090"
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    "Authors: Metodij Hadzi-Vaskov, Luca A Ricci",
    "Published: July 26, 2019",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781498325059.001",
    "The 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.",
    "Key empirical findings:",
    "Results hold for both gross debt and net debt.",
    "Results are robust to alternative dependent variable definitions, analytical techniques, and empirical specifications.",
    "Policy-relevant conclusion: these findings underscore the potential for fiscal consolidation in helping countries achieve a better credit rating.",
    "Sample: over one hundred advanced, emerging, and developing economies.",
    "Dependent variables and specifications: findings robust across alternative dependent variable definitions, analytical techniques, and empirical specifications.",
    "Debt measures: both gross debt and net debt produce consistent results.",
    "Nonlinearity: relationship varies by rating grade, producing differential effects across country groups (advanced economies versus emerging markets and developing economies).",
    "Fiscal consolidation can potentially improve sovereign credit ratings, given the documented negative and nonlinear relationship between public debt and ratings.",
    "The nonlinear dependence on rating grade implies that the marginal effect of debt reduction on the probability of moving to a higher rating category varies across rating levels and across country groups.",
    "**Working Paper**"
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