Do rating agencies increase or decrease financial market stability? This paper analyzes whether credit rating agencies may help to avoid inefficient self-fulfilling credit defaults. If investors follow risk-dominant strategies, we show that rating announcements and investors' private information...

The ability of credit rating agencies (CRAs) to influence financial markets has been widely debated in the academic literature, policy circles and general press. While some commentators think that CRAs’ announcements have relevant effects on the markets, others reckon that they may simply...