December 20^th, 2019

Ratings, prices, and real effects

José Jorge – CEF.UP

ABSTRACT

“Many claim that credit rating agencies respond to financial prices (such as CDS spreads) and that changes in credit ratings have real effects. Such claims are hard to test. Simple models regressing credit ratings on financial prices, or regressing real variables on credit ratings are unlikely to provide reliable estimates because of the feedback effects between ratings, prices and real variables. Prices cause ratings inasmuch as ratings cause prices, and real variables definitely affect ratings. In this paper we propose a structural vector auto regression approach to identify both the impact of financial prices on credit ratings and the real effects of credit ratings.“

 1:10 – 2:10 p.m. | Room 305