Equilibrium Rating and Debt Crises

  title={Equilibrium Rating and Debt Crises},
  author={Steinar Holden and Gisle James Natvik and Adrien Vigier},
We develop an equilibrium theory of credit rating in the presence of rollover risk. By in uencing rational creditors, ratings a ect sovereigns' probability of default, which in turn a ects ratings. In equilibrium, credit rating is pro-cyclical and magni es underlying market conditions. Moreover, biased incentives of credit rating agencies are ultimately… CONTINUE READING