Basu, KaushikDe, SupriyoRatha, DilipTimmer, Hans2014-02-042014-02-042013-10https://hdl.handle.net/10986/16859This paper analyzes the evolution of sovereign credit ratings in the wake of the global financial crisis by studying changes in actual, shadow, and relative ratings between 2008 and 2012. For countries that do not have a rating from the major rating agencies, shadow ratings are estimated as a function of macroeconomic, structural, and governance variables. The shadow rating exercise confirms earlier findings in the literature that even after the financial crisis, many unrated countries appear to be more creditworthy than previously believed and can access international capital markets. The paper also develops a new rating scale called the "relative risk rating," which ranks countries according to their actual or shadow ratings after controlling for changes in the world weighted average rating. When relative ratings in 2012 are compared with the first half of 2008, the world average rating is found to be weaker because of the financial crisis. The relative rating improved in developing economies such as Azerbaijan, Ethiopia, Kazakhstan, Indonesia, and the Philippines, whereas it deteriorated in crisis-affected high-income countries such as Cyprus, Greece, Spain, Portugal, Ireland, and Egypt. Interestingly, India, Jordan, Poland, and the United Kingdom had their rating outlook downgraded by the rating agencies, but their relative rating actually improved as other countries suffered even worse downgrades. A regression model is used to analyze the relative contributions of different variables to rating changes during 2008-2012, a helpful feature for policy makers interested in improving sovereign ratings.en-USCC BY 3.0 IGOACCOUNTINGADVANCED ECONOMIESBANK POLICYBANKSBENCHMARKBENCHMARKSBOND RATINGSBOND YIELDSBORROWING COSTSCAPITAL ACCOUNTCAPITAL ACCOUNT LIBERALIZATIONCAPITAL FLOWSCAPITAL INFLOWSCAPITAL MOBILITYCDSCONFLICT OF INTERESTCORPORATE FINANCECOUNTRY RISKCREDIT DEFAULTCREDIT DEFAULT SWAPSCREDIT QUALITYCREDIT RATINGCREDIT RATING AGENCIESCREDIT RATINGSCREDIT RISKCREDITWORTHINESSCURRENCYCURRENCY CRISESCYCLICAL FACTORSDATA AVAILABILITYDEBTDEBT CRISISDEBT RATINGSDEBT RATIODEBT RELIEFDEBT STOCKSDEFAULT RISKDEFAULTSDEPENDENT VARIABLEDEVELOPING COUNTRIESDEVELOPING ECONOMIESDEVELOPMENT ECONOMICSDEVELOPMENT FINANCEDEVELOPMENT POLICYDEVELOPMENT PROJECTSDOMESTIC FINANCIAL SECTORECONOMETRIC ANALYSISECONOMETRIC MODELECONOMIC CIRCUMSTANCESECONOMIC DEVELOPMENTECONOMIC OUTLOOKECONOMIC PERFORMANCEECONOMIC POLICYECONOMIC STABILITYECONOMIC STRENGTHEMERGING MARKETEMERGING MARKET ECONOMIESEMERGING MARKETSEXCHANGE RATEEXCHANGE RATESEXPLANATORY VARIABLESEXPORTSEXTERNAL DEBTFEDERAL RESERVEFEDERAL RESERVE BANKFEDERAL RESERVE BANK OF NEW YORKFINANCIAL ANALYSISFINANCIAL CRISISFINANCIAL INTERMEDIARYFINANCIAL MARKETSFINANCIAL SECTORFINANCIAL SECTOR DEVELOPMENTFINANCIAL STABILITYFOREIGN CURRENCYFOREIGN EXCHANGEFOREIGN EXCHANGE MARKETSFUTURE RESEARCHGDPGLOBAL CAPITALGLOBAL CAPITAL MARKETSGLOBAL FINANCEGOLDGOVERNANCE INDICATORSGOVERNMENT BONDGOVERNMENT BOND YIELDGOVERNMENT DEBTGROSS DEBTGROSS NATIONAL INCOMEGROWTH RATEHIGH-INCOME COUNTRIESIMPORTIMPORTSINCOMEINDEBTEDNESSINDEX NUMBERSINFLATIONINTERNATIONAL BANKINTERNATIONAL CAPITALINTERNATIONAL CAPITAL MARKETSINTERNATIONAL DEBTINTERNATIONAL DEBT SECURITIESINTERNATIONAL MONEYINTERNATIONAL SETTLEMENTSINVESTMENT FLOWSLESS DEVELOPED COUNTRIESLIQUIDITYLOCAL CURRENCYMACRO-STABILITYMACROECONOMIC INSTABILITYMARKET INFORMATIONMARKET PRICESMATHEMATICAL ECONOMICSMATURITIESMATURITYMIGRATIONMISALIGNMENTMONETARY FUNDNATIONAL INCOMEPOLICY CREDIBILITYPOLITICAL DISTURBANCESPORTFOLIOPOSITIVE EFFECTSPOST-CRISIS PERIODPRIVATE ENTITIESPUBLIC POLICYREMITTANCESREPUTATIONRESERVERESERVESRULE OF LAWSHADOW VALUESSHORT TERM DEBTSHORT-TERM DEBTSHORT-TERM EXTERNAL DEBTSOLVENCYSOVEREIGN BONDSOVEREIGN DEBTSOVEREIGN DEFAULTSOVEREIGN ENTITIESSOVEREIGN RATINGSOVEREIGN RATINGSSOVEREIGN RISKSTANDARD DEVIATIONSUB-NATIONAL ENTITIESSUM OF IMPORTSSUSTAINABLE FINANCETOTAL EXTERNAL DEBTTOTAL RESERVESTREASURYVOLATILITYWEIGHTSWELFARE ECONOMICSWORLD DEVELOPMENT INDICATORSWORLD ECONOMYYIELD SPREADSWorld Bankhttps://doi.org/10.1596/1813-9450-6641