This paper discusses the role of credit rating agencies during the
recent financial crises. In particular, it examines whether the agencies
can add to the dynamics of emerging market crises. Academics
and investors often argue that sovereign ratings are responsible for
pronounced boom-bust cycles in emerging-markets lending. Using a
VAR system this paper examines how US dollar bond yield spreads
and international liquidity react to an unexpected sovereign rating
change. Contrary to common belief and previous studies, the empirical
results suggest that an abrupt downgrade does not necessarily
intensify financial crises.
31/01/2000
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