1/9
Jayati Ghosh (@Jayati1609) is absolutely right in this paper to criticize credit-rating agencies for reinforcing volatility in speculative markets and, in so doing, further undermining the very behavior that can lead to economic recovery.
@ProSyn prosyn.org/sngKTjc
Jayati Ghosh (@Jayati1609) is absolutely right in this paper to criticize credit-rating agencies for reinforcing volatility in speculative markets and, in so doing, further undermining the very behavior that can lead to economic recovery.
@ProSyn prosyn.org/sngKTjc
2/9
Perhaps because they are paid by issuers, or because they are under constant pressure to anticipate market behavior even when these are clearly in speculative modes, credit-rating agencies have become highly pro-cyclical mechanisms that support prices on the way up and...
Perhaps because they are paid by issuers, or because they are under constant pressure to anticipate market behavior even when these are clearly in speculative modes, credit-rating agencies have become highly pro-cyclical mechanisms that support prices on the way up and...
3/9
push them down sharply when they fall. Pro-cyclical mechanisms in speculative markets always worsen the function of markets as systems for value discovery and efficient capital allocation.
This isn't the case in well-functioning capital markets in which prices are mainly...
push them down sharply when they fall. Pro-cyclical mechanisms in speculative markets always worsen the function of markets as systems for value discovery and efficient capital allocation.
This isn't the case in well-functioning capital markets in which prices are mainly...
4/9
driven by fundamentals. Credit-rating agencies for example have often (but not always) played a useful role rating corporate debt in large domestic markets, but it seems to me that this has not been the case for international capital markets since at least the 1970s, and...
driven by fundamentals. Credit-rating agencies for example have often (but not always) played a useful role rating corporate debt in large domestic markets, but it seems to me that this has not been the case for international capital markets since at least the 1970s, and...
5/9
without serious reform to the international capital regime, is unlikely to be the case any time soon.
That is why rather than completely support or reject the role of rating agencies, it would be better for us to try to understand the institutional factors that constrain...
without serious reform to the international capital regime, is unlikely to be the case any time soon.
That is why rather than completely support or reject the role of rating agencies, it would be better for us to try to understand the institutional factors that constrain...
6/9
commercial credit-rating agencies, in this case from supporting counter-cyclical behavior, even though this would clearly benefit the functioning of capital markets.
I wrote about this in a 2003 paper, in which I argued that it would be helpful...
jstor.org/stable/4020987…
commercial credit-rating agencies, in this case from supporting counter-cyclical behavior, even though this would clearly benefit the functioning of capital markets.
I wrote about this in a 2003 paper, in which I argued that it would be helpful...
jstor.org/stable/4020987…
7/9
if some multilateral entity (IMF? World Bank? ADB? AIIB?) were to set up a rival credit-rating agency that did not get paid by issuers and arrangers to help them raise financing and, among other things, rated the riskiness of balance sheets in a way that rewarded...
if some multilateral entity (IMF? World Bank? ADB? AIIB?) were to set up a rival credit-rating agency that did not get paid by issuers and arrangers to help them raise financing and, among other things, rated the riskiness of balance sheets in a way that rewarded...
8/9
prudent behavior and reduced financial distress costs.
I also discussed this more extensively in my 2001 book (The Volatility Machine). At any rate I support Jayati's call for an independent rating agency that correctly understands balance-sheet...
amazon.com/Volatility-Mac…
prudent behavior and reduced financial distress costs.
I also discussed this more extensively in my 2001 book (The Volatility Machine). At any rate I support Jayati's call for an independent rating agency that correctly understands balance-sheet...
amazon.com/Volatility-Mac…
9/9
risks and, more importantly, rewards developing-countries for stabilizing their balance sheets and improving long-term growth prospects, rather than responding to short-term investor needs. This would actually help improve the the efficient long-term allocation of capital.
risks and, more importantly, rewards developing-countries for stabilizing their balance sheets and improving long-term growth prospects, rather than responding to short-term investor needs. This would actually help improve the the efficient long-term allocation of capital.
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