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Credit rating agency downgrades and the Eurozone sovereign debt crises
Department of Economics, Boston College, USA.
Jönköping University, Jönköping International Business School, JIBS, Economics.ORCID iD: 0000-0003-3879-7361
Jönköping University, Jönköping International Business School, JIBS, Economics, Finance and Statistics.ORCID iD: 0000-0001-5776-9396
2016 (English)In: Journal of Financial Stability, ISSN 1572-3089, E-ISSN 1878-0962, Vol. 24, 117-131 p.Article in journal (Refereed) Published
Abstract [en]

This paper studies the reaction of the Euro's value againstmajor currencies to sovereign rating announcements from Moody's, S&P and Fitch CRAs during the Eurozone debt crisis in 2010--2012 based on eventstudy methodology combined with GARCH models. We also analyze how theyields of French, Italian, German and Spanish government long-term bondswere affected by CRA announcements. Our results reveal that CRA downgrades, watchlist and outlook announcements had no impact on the value of the Euro currency but increased exchange rate volatility. At the same time, downgrades as well as negative outlook announcements increased the yields of French, Italian, and Spanish bonds and evenaffected the German bond's yields. This shows that the monetary union hasled to a breakdown of the consequences of the rating shocks between currency value and sovereign bond yields. The reason is that part of the rating shock is absorbed by an internal repricing of sovereign bonds.

Place, publisher, year, edition, pages
2016. Vol. 24, 117-131 p.
Keyword [en]
Credit Rating Agencies, Euro Crisis, Sovereign Debt, Euro Exchange Rate
National Category
URN: urn:nbn:se:hj:diva-29763DOI: 10.1016/j.jfs.2016.05.001OAI: diva2:918802
Available from: 2016-04-12 Created: 2016-04-12 Last updated: 2016-05-25Bibliographically approved

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Schäfer, DorotheaStephan, Andreas
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