Short and Long-Run Determinants of Sovereign Debt Credit Ratings

We study the determinants of sovereign debt ratings from the three main international rating agencies, for the period 1995-2005. Using linear and ordered response models we employ a specification that allows us to distinguish between short and long-run effects, on a country's rating, of macroeconomic and fiscal variables. The results point to a good performance of the models in explaining a country's rating, both across agencies and time. Changes in GDP per capita, GDP growth, government debt, and government balance have a short-run impact on a country's credit rating, while government effectiveness, external debt, foreign reserves and default history are important long-run determinants