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Rating for government debt and economic stability

Author

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  • Tamegawa, Kenichi
Abstract
In this study, we incorporate a credit rating scheme for government debt into a standard dynamic general equilibrium model. We then analyze the relationship between a credit rating system and economic stability. The main result demonstrates the existence of an unstable rating system. Such a system would be generated by information asymmetries between rating agencies and government stances regarding debt. We also find that if the sensitivity of credit ratings to debt-to-GDP ratio is high, then it could lead to economic instability in the sense that this ratio explodes.

Suggested Citation

  • Tamegawa, Kenichi, 2016. "Rating for government debt and economic stability," The Journal of Economic Asymmetries, Elsevier, vol. 13(C), pages 35-44.
    • Handle: RePEc:eee:joecas:v:13:y:2016:i:c:p:35-44
    DOI: 10.1016/j.jeca.2015.05.003
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    References listed on IDEAS

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    Cited by:

    1. Giannini, Bianca & Oldani, Chiara, 2022. "Asymmetries in the sustainability of public debt in the EU: The use of swaps," The Journal of Economic Asymmetries, Elsevier, vol. 26(C).
    2. Mario Coccia, 2018. "National debts and government deficits within European Monetary Union: Statistical evidence of economic issues," Papers 1806.07830, arXiv.org.
    3. Mike Seiferling, 2020. "Apples, oranges and lemons: public sector debt statistics in the 21st century," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-17, December.
    4. Coccia, Mario, 2017. "Asymmetric paths of public debts and of general government deficits across countries within and outside the European monetary unification and economic policy of debt dissolution," The Journal of Economic Asymmetries, Elsevier, vol. 15(C), pages 17-31.

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    More about this item

    Keywords

    Debt rating; Government debt; Stability; Dynamic stochastic general equilibrium modeling;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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