Sovereign credit ratings in the European Union: a model-based fiscal analysis

Vito Polito; Michael Wickens

doi:10.1016/j.euroecorev.2015.05.009

Sovereign credit ratings in the European Union: a model-based fiscal analysis

Vito Polito, Michael Wickens

Department of Economics

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Abstract

We present a model-based measure of sovereign credit ratings derived solely from the fiscal position of a country: a forecast of its future debt liabilities, and its potential to use fiscal policy to repay these. We use this measure to calculate credit ratings for 14 European countries over the period 1995–2012. This measure identifies a European sovereign debt crisis almost two years before the official ratings of the credit rating agencies.

Original language	English
Pages (from-to)	220-247
Number of pages	28
Journal	European Economic Review
Volume	78
Early online date	26 Jun 2015
DOIs	https://doi.org/10.1016/j.euroecorev.2015.05.009
Publication status	Published - 1 Aug 2015

Keywords

credit risk
sovereign risk
fiscal limits
default probability

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10.1016/j.euroecorev.2015.05.009

EU Credit Ratings_revisionSubmitted manuscript, 612 KBLicence: CC BY-NC-ND

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2333582

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AB - We present a model-based measure of sovereign credit ratings derived solely from the fiscal position of a country: a forecast of its future debt liabilities, and its potential to use fiscal policy to repay these. We use this measure to calculate credit ratings for 14 European countries over the period 1995–2012. This measure identifies a European sovereign debt crisis almost two years before the official ratings of the credit rating agencies.

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KW - fiscal limits

KW - default probability

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Sovereign credit ratings in the European Union: a model-based fiscal analysis

Abstract

Keywords

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