On the determinants of sovereign credit ratings: evidence from the Eurozone.

Abstract

In the following study, we investigate the determinants of sovereign credit ratings. The ratings dataset used attributed by the three main rating agencies and consists of the Eurozone countries for the period 2002-2013. The methodology followed controls for cross sectional dependence between countries by including cross sectional averages as additional regressors. Moreover, we investigate the role of some variables considered to be extremely significant for the recent Eurozone debt crisis. Apart from this, we split the data into two groups for low and high ratings and examine the different way low and high sovereign ratings affected by the explanatory variables. The results show a general good performance of the procedure and reveal that changes on a set macroeconomic variables are responsible for a large part of the variability of sovereign credit ratings.