Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/251830 
Authors: 
Year of Publication: 
2022
Series/Report no.: 
EIB Working Papers No. 2022/05
Publisher: 
European Investment Bank (EIB), Luxembourg
Abstract: 
Public debt is a very weak predictor of a country's credit rating if a country's other features are not taken into account. However, everything else equal, more public debt is associated with worse ratings. This paper explores the relationship between debt and sovereign creditworthiness by explicitly modelling the debt thresholds associated with rating changes. It finds that the impact of an increase in public debt is highly non-linear and crucially depends on a country's economic situation. In particular, low levels of GDP per capita are associated with a smaller range of possible ratings than higher levels. Hence, for countries with a higher GDP per capita, a change in debt levels is thus more likely to result in a rating change. Overall, the non-linear relationship between debt and creditworthiness is substantial, and accounting for it improves the performance of sovereign credit rating models significantly.
Persistent Identifier of the first edition: 
ISBN: 
978-92-861-5236-8
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.