A Look at Sovereign Credit Ratings and Their Determinants Throughout the Financial Crisis

The determinants of sovereign credit rating are becoming increasingly more important as many rating agencies have been more active in adjusting their ratings. Our paper analyzed the determinants based on Standard & Poor’s sovereign credit ratings, for the period 1995-2009. Using a linear regression framework, we examined several variables under the political, economic, external, fiscal and monetary categories. The relationship between each determinant was analyzed by isolating each credit rating, and by further employing transformation on specific variables. The results indicate a good performance of the estimated model with a high level of fit. GDP per capita, inflation, default history and advanced economic regions have a significant impact on a country’s credit rating.