Abstract
This paper studies the impact of sovereign credit rating and outlook changes on the shape of the sovereign yield curve using data for five European countries, namely, Greece, Ireland, Italy, Portugal, and Spain, known as the GIIPS for the period of 2001–2016. We use the dynamic Nelson–Siegel model to estimate the level, slope, and curvature of the yield curve. Subsequently, we employ the vector autoregressive model to estimate the effect of sovereign rating and outlook changes on the sovereign yield curve. We find a significant effect of rating downgrades and an insignificant effect of rating upgrades in all five countries; however, the results for the effect of changes in outlook status are mixed. Our results remain robust to various sensitivity tests.
| Original language | English |
|---|---|
| Pages (from-to) | 895-916 |
| Number of pages | 22 |
| Journal | International Review of Finance |
| Volume | 21 |
| Issue number | 3 |
| Early online date | 20 Apr 2020 |
| DOIs | |
| Publication status | Published (in print/issue) - Sept 2021 |
Bibliographical note
Publisher Copyright:© 2020 International Review of Finance Ltd. 2020
UN SDGs
This output contributes to the following UN Sustainable Development Goals (SDGs)
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SDG 8 Decent Work and Economic Growth -
SDG 9 Industry, Innovation, and Infrastructure
Keywords
- credit ratings
- dynamic Nelson–Siegel model and state-space model
- sovereign bonds
- term structure of sovereign yields
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