To err is human: rating agencies and the interwar foreign government debt crisis

Abstract:

During the 1930s, rating agencies took up a central role in regulatory supervision that they still have today. The proximate cause for this changeover was the economic shock of the Great Depression. Exploring the performance of rating agencies in assessing the risks of sovereign debt, an important segment of the bond market, we do not find that superior forecasting capacities can explain the agencies' growing importance.

JEL Classification: E44, F34, G15, N20

Keywords: sovereign credit ratings, Great Depression, financial crisis, international bond markets