Credit ratings in the presence of bailout: the case of Mexican subnational government debt

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dc.description.abstract Searching for an explanation for investment grades assigned to virtually bankrupt subnational governments in LDCs, we study the determinants of bond ratings for municipalities in Mexico. Our data set includes ratings from three agencies: S&P, Fitch, and Moody´s. To control for selectivity in the process of choosing an agency, we model the problem as a tri-variate selfselection process with ordinal responses. Additionally, in order to circumvent the estimation of multidimensional integrals, we implement a Monte Carlo Expectation Maximization (MCEM) algorithm. We find that not only financial but also political factors, such as number of voters and political party in power, are important and show evidence that the probability of bailout has a heavy weight in the rating process. Our outcomes question the purpose of rating sub-national debt in LDCs with a bailout tradition, since in those cases the market may assess the risk of subnational entities as that of sovereign instruments. en
dc.title Credit ratings in the presence of bailout: the case of Mexican subnational government debt en
dc.contributor.author Hernández-Trillo, Fausto
dc.contributor.author Smith-Ramírez, Ricardo
dc.date.accessioned 2014-11-19T01:55:43Z
dc.date.available 2014-11-19T01:55:43Z
dc.date.issued 2009-10
dc.identifier.issn 1529-7470
dc.identifier.uri http://hdl.handle.net/123456789/48788
lacea.language.supported en
dc.language.iso en
dc.publisher Brookings Institution Press
dc.subject Credit ratings
dc.subject Bailout
dc.subject Subnational governments
dc.subject Debt
dc.subject Financial markets
dc.subject Mexico
dc.type Article

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