Short- and long-run determinants of sovereign debt credit ratings

We study the determinants of sovereign debt ratings from the three main rating agencies, for the period 1995–2005. Using linear and ordered response models, we employ a specification that allows us to distinguish between short- and long-run effects, on a country's rating, of macroeconomic and fiscal variables. Changes in GDP per capita, GDP growth, government debt, and government balance have a short-run impact on a country's credit rating, while government effectiveness, external debt, foreign reserves, and default history are important long-run determinants.