The Pro-cyclicality Of Sovereign Rating

Sovereign rating, given by rating agencies, is a judgment of default risk of sovereign body (usually a sovereign state). Essentially, it is a judgment of macroscopically economic situation of one country. In the financial market, credit rating agencies give the sovereign ratings with their reputation and professional and technical methods. Sovereign ratings solve the problem of asymmetric information in financial market, as enabling investors to get more fully information of the market. Sovereign rating level will directly affect the financing difficulty and the cost of financing of one country in the international financial market, so as a" financial judgment", credit agencies supposedly warn economic change as early as possible, and ensure the objectivity of rating. However, the adjustment of the sovereign rating, in the East Asia crisis and the European debt crisis, and economic cycles has positive relationship. Considering the sovereign rating given by credit rating agencies will influence the economy of every country in turn, over-valuation positively affect the economy of a country, underestimate will make its economy suffered greatly, so the pro-cyclicality of sovereign rating is worthy of discussion.The proof of the pro-cyclicality of sovereign rating is divided into two steps in this article:the first step uses Annual panel data of80countries from2000to2011, building the sovereign rating model, study on several countries sovereign rating change process in the European debt crisis, proved the sovereign rating and economic cycle have positive relationship; the second step uses quarter panel data of17Europe countries from2000to2011, prove that sovereign ratings of adjustment and rate spread change have interaction by Grainger non causality test, considering the result of The two step, the conclusion of the pro-cyclicality of sovereign rating will be drawn.