Procyclicality and path dependence of sovereign credit ratings: The example of Europe

L. Freitag

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This paper investigates empirically the behavior of Credit Rating Agencies (CRAs) when assessing
sovereign solvency for European countries. Using Probit regressions I find that even after controlling
for macroeconomic factors, CRAs take the business cycle into account. Also, there is a clear case of
path dependence in sovereign ratings. Additionally, it turns out that there seems to be a discrepancy
between upgrades and downgrades. These results are robust to a number of different specifications.
Original languageEnglish
Place of PublicationMaastricht
PublisherMaastricht University, Graduate School of Business and Economics
Publication statusPublished - 1 Jan 2014

Publication series

SeriesGSBE Research Memoranda

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