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If rating agencies add no new information to markets, their actions are not a public policy concern. But as rating changes may be anticipated, testing whether ratings add value is not straightforward. This paper argues that ratings and spreads are both noisy signals of fundamentals and suggest ratings add value if, controlling for spreads, they help explain other variables. The paper additionally analyzes the different actions (ratings and outlooks) of the three leading agencies for sovereign debt, considering the differing effects of more or less anticipated events. The results are consistent across a wide range of tests. Ratings do matter and hence how the market for ratings functions may be a public policy concern.
This paper analyzes alternative models for emerging sovereign ratings. Although a small number of economic fundamentals explain ratings reasonably well, variations in those economic fundamentals are themselves explained by a small number of world factors. On the other hand, global financial variables associated with risk aversion are additionally required in order to explain the significant spre ... (View publication)
This paper studies the influence of external financial factors on economic activity in emerging economies (EMEs) motivated by a considerable increase in foreign financing by the corporate sector in EMEs since the early 2000s, mainly in the form of bond issuance. A quarterly external financial indicator for several EMEs is built using bond-level data on spreads of corporate bonds issued in fore ... (View publication)
Deeper financial integration is expected to enable low-saving countries to increase domestic investment but also to increase crisis risks by facilitating the accumulation of risky foreign liabilities. This paper explores the connections between financial integration, investment and crisis risk to assess this tradeoff. It confirms expectations but also finds that the accumulation of safe foreign as ... (View publication)
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