Can a negative shock to sovereign ratings invoke a vicious cycle of increasing government bond yields and further downgrades, ultimately pushing a country toward default? The narratives of public and political discussions, as well as of some widely cited papers, suggest this possibility. In this...

Although there is a wide consensus that rating agencies have frequently failed to predict major crises, the literature on sovereign ratings has so far mostly focused on explaining the rating level rather than explaining the timing of the rating decision. In this paper we aim to fill this gap in...