TY  - JOUR
AU  - Reinhart,Carmen M.
TI  - Default, Currency Crises and Sovereign Credit Ratings
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8738
PY  - 2002
Y2  - January 2002
UR  - http://www.nber.org/papers/w8738
L1  - http://www.nber.org/papers/w8738.pdf
N1  - Author contact info:
Carmen M. Reinhart
University of Maryland
School of Public Policy
and Department of Economics
4105 Van Munching Hall
College Park, MD 20742
Tel: 301/405-7006
Fax: 301/403-8107
E-Mail: creinhar@umd.edu
AB  - Sovereign credit ratings play an important role in determining the terms and the extent to which countries have access to international capital markets. In principle, there is no reason why changes in sovereign credit ratings should be expected to systematically predict a currency crisis. In practice, however, in developing countries there is a strong link between currency crises and default. About 85 percent of all the defaults in the sample are linked with currency crises. The results presented here suggest that sovereign credit ratings systematically fail to anticipate currency crises--but do considerably better predicting defaults. Downgrades usually follow the currency crisis--possibly highlighting how currency instability increases default risk.
ER  -