Abstract:

The role of credit rating agencies in evaluating the creditworthiness and assessing the level of vulnerabilities of nations is essential not only for domestic and foreign investors to calibrate their portfolios but also for economists and policymakers to find better ways to stabilize the nation's risks, such as political and economic vulnerabilities. Based on this explanation, this paper examines the causal relationship between credit rating announcements and economic- and political-based country risks for the case of Greece in the 20 years, covering monthly data from 1999 to 2018. As far as current research is concerned, this is the initial attempt to investigate this nexus from a risk perspective, as the paper considers risk-based data for the empirical analyses. The empirical results demonstrate a unidirectional causal influence of political risk on sovereign credit risk in Greece, but a two-way causal link between sovereign credit risk and economic risk. We end by providing specific suggestions and opinions to both economists and policymakers in Greece, as the empirical results are crucial for policymaking decisions to be implemented, if necessary, to be more effective and sustainable governmental and economic decisions.

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