Are sovereign credit ratings overrated?
|Issue||W - 47|
|Authors||Davor Kunovac and Rafael Ravnik|
|JEL||G14, G24, H63, E62|
Sovereign credit ratings, borrowing cost, macroeconomic and fiscal fundamentals
In this paper we examine the relevance of changes in sovereign credit rating for the borrowing cost of EU countries. Our results indicate that discretionary credit rating announcements are only of limited economic importance for the borrowing cost of these countries. It seems that rating agencies do not reveal important new information to financial markets, in addition to that already contained in the underlying fundamentals. Hence, given the sentiment in financial markets, the borrowing cost of a country can only be reduced by improving macroeconomic and fiscal fundamentals.