Local versus Foreign Currency Ratings

The authors examine the statistical determinants of transfer risk using probit estimation and an extensive data set of over 300 sovereign ratings given by the leading rating agencies between 1992 and 1997. Both macroeconomic and balance sheet variables are found to be important, and regional and rating agency biases are present. The models both within and out-of-sample perform well and produce a close relationship with the variables predicting currency crises.