**CRA laggards and a Downgrade without Macroeconomic Evidence**

Cantor and Packer (1996) made a model (the FLS model) predicting sovereign rating changes based on preceding macroeconomic variables (usual- GDP, growth, inflation, deficit, CA, Debt) that proved robust when replicated by other authors in later timeframes and country data, proving that ratings don't give us any new information that everyone already didn't know. Mora (2005) added financial factors (country's spread on Eurobonds and its past default history) to the model and sought to ask "Do ratings change quickly enough when situations change?

∆Rating_{i,t} = α + βerror_{i,t–1} + ε_{i,t}

Here, the actual change in a country’s rating from mid-year to next is regressed on a one-year lagged error term-which is the change in predicted ratings from the FLS+financial factors model. Beta was proved to be positive (significant at the 1% level).

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