Econometric Analysis of the Relationship Between Sovereign Credit Ratings and Basic Macroeconomic Variables: An Application on the Upper Middle Income Countries

In the study beeing investigated therelationship between sovereign credit ratings and basic macroeconomic variables, sovereign credit ratings of 32 countries rated by Standard and Poors (S&P) and five independent variables were examined within the 2008-2017 period by using panel ordered probit model. The results show that as per capita income rises, the likelihood of credit ratings at BB + and lower levels is reduced, increasing the likelihood of having an investment grade BBB- and credit ratings on it. The increase in the per capita income in the countries in the upper middle income group increases the likelihood of reaching the highest BBB level while decreasing the possibility of passing the BB-. The opposite is true for inflation and interest rates. As the general level of prices and the interest rate increase, the rate of increase of the investable level of an upper middle income group decreases and the rate of speculative level increases. While the increase in the general level of prices has strongly increased the likelihood that the countries subject to the study are at the BB- level of the credit rating, it is also strongly reducing the likelihood of being at an investable level such as BBB. On the other hand, there is no systematic relationship between soverign creditratings and the unemployment rate and the exchange rate for the countries in the upper middle income group.