A BEJM Topics article.

Abstract

In order to explore how credit ratings may affect financial markets, we analyze a global game model of debt roll-over in which heterogeneous investors act strategically. We find that the addition of the rating agency has a non-monotonic effect on the probability of default and the magnitude of the response of capital flows to changes in fundamentals. We also establish that introducing a rating agency can bring multiple equilibria to a market that otherwise would have a unique equilibrium.

Submitted: October 3, 2005 · Accepted: June 14, 2006 · Published: September 13, 2006

Originally published in Topics in Macroeconomics.

Recommended Citation

Carlson, Mark and Hale, Galina B. (2006) "Rating Agencies and Sovereign Debt Rollover," Topics in Macroeconomics: Vol. 6 : Iss. 2, Article 8.
Available at: http://www.bepress.com/bejm/topics/vol6/iss2/art8