Abstract
In this paper we study the determinants of sovereign debt credit ratings using rating
notations from the three main international rating agencies, for the period 1995-2005.
We employ panel estimation and random effects ordered probit approaches to assess the
explanatory power of several macroeconomic and public governance variables. Our
results point to a good performance of the estimated models, across agencies and across
the time dimension, as well as a good overall prediction power. Relevant explanatory
variables for a country's credit rating are: GDP per capita, GDP growth, government
debt, government effectiveness indicators, external debt, external reserves, and default
history.
JEL: C23; C25; E44; F30; F34; G15; H63
Keywords: credit ratings; sovereign debt; rating agencies; panel data; random effects
ordered probit
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