Abstract
This chapter explored whether the sovereign debt credit ratings shocks impact credit growth directly and indirectly via the economic growth channel. We find that sovereign debt credit ratings downgrades (upgrades) shocks lead to a large peak decline (increase) when economic growth is allowed to operate in the model than when it is shut off. This evidence confirms that economic growth matters for the transmission of sovereign debt credit ratings downgrades and upgrades shocks to credit growth. Furthermore, sovereign debt credit ratings downgrades (upgrades) shocks lead to a large peak decline (increase) when economic growth operates in the model than when it is shut off. This evidence confirms that economic growth matters for the transmission of sovereign debt credit ratings downgrades and upgrades shocks to credit growth. Furthermore, evidence shows that credit growth declines more due to sovereign debt credit ratings downgrades shocks than it increases due to upgrades shocks. These results indicate asymmetric shock effects sovereign debt credit ratings downgrades and upgrades. In addition, shocks to sovereign debt credit ratings revisions lead to big fluctuation in credit growth when GDP growth is endogenous in the model than when it is exogenous. This shows that allowing for feedback effects leads to a bigger amplification role for GDP growth. This evidence shows that GDP growth is key transmitter of sovereign debt credit ratings downgrades and upgrades shocks to credit growth.
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Notes
- 1.
The gap between the direct and indirect channels shows the effects of remaining channels. See Kganyago (2016) on other possible channels of transmission.
- 2.
The results are robust to different orderings of the variables.
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Gumata, N., Ndou, E. (2019). Are Sovereign Debt Credit Ratings Shocks Transmitted Via Economic Growth to Impact Credit Growth?. In: Capital Flows, Credit Markets and Growth in South Africa. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-30888-9_18
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DOI: https://doi.org/10.1007/978-3-030-30888-9_18
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