Arbeitspapier
The Joint Dynamics of Sovereign Ratings and Government Bond Yields
In the present paper, we build a bivariate semiparametric dynamic panel model to reproduce the joint dynamics of sovereign ratings and government bond yields. While the individual equations resemble Pesaran-type cointegration models, we allow for different long-run relationships in both equations, nonlinearities in the level effect of ratings, and asymmetric effects in changes of ratings and yields. We find that the interest rate equation and the rating equation imply significantly different long-run relationships. While the high persistence in both interest rates and ratings might lead to the misconception that they follow a unit root process, the joint analysis reveals that they converge slowly to a joint equilibrium. While this indicates that there is no vicious cycle driving countries into default, the persistence of ratings is high enough that a rating shock can have substantial costs. Generally, the interest rate adjusts rather quickly to the risk premium that is in line with the rating. For most ratings, this risk premium is only marginal. However, it becomes substantial when ratings are downgraded to highly speculative (a rating of B) or lower. Rating shocks that drive the rating below this threshold can increase the interest rate sharply, and for a long time. Yet, simulation studies based on our estimations show that it is highly improbable that rating agencies can be made responsible for the most dramatic spikes in interest rates.
- Sprache
-
Englisch
- Erschienen in
-
Series: IWH Discussion Papers ; No. 4/2015
- Klassifikation
-
Wirtschaft
Semiparametric and Nonparametric Methods: General
Single Equation Models; Single Variables: Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
International Lending and Debt Problems
Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
- Thema
-
sovereign risk
rating agencies
semiparametric model
nonlinearities
- Ereignis
-
Geistige Schöpfung
- (wer)
-
El-Shagi, Makram
von Schweinitz, Gregor
- Ereignis
-
Veröffentlichung
- (wer)
-
Leibniz-Institut für Wirtschaftsforschung Halle (IWH)
- (wo)
-
Halle (Saale)
- (wann)
-
2015
- Handle
- URN
-
urn:nbn:de:101:1-201505263215
- Letzte Aktualisierung
-
10.03.2025, 11:43 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- El-Shagi, Makram
- von Schweinitz, Gregor
- Leibniz-Institut für Wirtschaftsforschung Halle (IWH)
Entstanden
- 2015
Ähnliche Objekte (12)
The Joint Dynamics of Sovereign Ratings and Government Bond Yields
The joint dynamics of sovereign ratings and government bond yields
The Joint Dynamics of Sovereign Ratings and Government Bond Yields
Much ado about nothing: Sovereign ratings and government bond yields in the OECD
Much Ado About Nothing: Sovereign Ratings and Government Bond Yields in the OECD
Bond yields, sovereign risk and maturity structure
A note concerning government bond yields
Convergence behavior of sovereign bond yields in the EU and COVID-19 government responses
Sovereign risk, European crisis resolution policies and bond yields
Correlation between Maltese and euro area sovereign bond yields
On the inflation risks embedded in sovereign bond yields
How Does Liquidity Affect Government Bond Yields?
The Joint Dynamics of Sovereign Ratings and Government Bond Yields
The joint dynamics of sovereign ratings and government bond yields
The Joint Dynamics of Sovereign Ratings and Government Bond Yields
Much ado about nothing: Sovereign ratings and government bond yields in the OECD
Much Ado About Nothing: Sovereign Ratings and Government Bond Yields in the OECD
Bond yields, sovereign risk and maturity structure
A note concerning government bond yields
Convergence behavior of sovereign bond yields in the EU and COVID-19 government responses
Sovereign risk, European crisis resolution policies and bond yields
Correlation between Maltese and euro area sovereign bond yields
On the inflation risks embedded in sovereign bond yields
How Does Liquidity Affect Government Bond Yields?
The Joint Dynamics of Sovereign Ratings and Government Bond Yields
The joint dynamics of sovereign ratings and government bond yields
The Joint Dynamics of Sovereign Ratings and Government Bond Yields
Much ado about nothing: Sovereign ratings and government bond yields in the OECD
Much Ado About Nothing: Sovereign Ratings and Government Bond Yields in the OECD
Bond yields, sovereign risk and maturity structure
A note concerning government bond yields
Convergence behavior of sovereign bond yields in the EU and COVID-19 government responses
Sovereign risk, European crisis resolution policies and bond yields
Correlation between Maltese and euro area sovereign bond yields
On the inflation risks embedded in sovereign bond yields