Sovereign credit revisions impact on the European Economy

This research aims to find the direction of causality between rating revisions and economic growth in Europe during 2002-2015. Based on a system-GMM, developed by Arellano and Bond (1995), the-Standard & Poor’s-sovereign rating revisions’ effects on economic growth, controlling for other determinants, will be estimated. Rating revisions are shown to Granger cause output growth throughout the whole time-frame considered and no reverse causality was verified. We find evidence that rating revisions do impact economic growth while outlook announcements do not. More open economies look to have upgrade revisions effects on growth boosted, while negative revisions effects are dampened. Whilst analyzing the crisis outbreak impact, we perceived that the upgrade revisions’ effect on economic growth were halved