Credit Rating and Debt Crises
Steinar Holden, Gisle James Natvik & Adrien Henri Vigier
International Economic Review, Volume 59, Issue 2, May 2018.
We develop an equilibrium theory of credit rating in the presence of rollover risk. By influencing rational creditors, ratings affect sovereigns' probability of default, which in turn affects ratings. Our analysis reveals a pro‐cyclical impact of credit rating: In equilibrium the presence of a rating agency increases default risk when it is high and decreases default risk when it is low.