Since June 2007, the creditworthiness of structured finance products has deteriorated rapidly. The number of downgrades in November 2007 alone exceeded 2,000 and many downgrades were severe, with 500 tranches downgraded more than 10 notches. Massive downgrades continued in 2008. More than 11,000...

We analyze a model where investors use a credit rating to decide whether to finance a firm. The rating quality depends on unobservable effort exerted by a credit rating agency (CRA). We study optimal compensation schemes for the CRA when a planner, the firm, or investors order the rating. Rating...

This paper explores the economic role credit rating agencies play in the corporate bond market. We consider three existing theories about multiple ratings: information production, rating shopping and regulatory certification. Using differences in rating composition, default prediction and credit...

We examine whether credit rating agencies reward accurate or biased analysts. Using data collected from Moody's corporate debt credit reports, we find that Moody's is more likely to promote analysts who are accurate, but less likely to promote analysts who downgrade frequently. Combined,...

Many identify inflated credit ratings as one contributor to the recent financial market turmoil. We develop an equilibrium model of the market for ratings and use it to examine possible origins of and cures for ratings inflation. In the model, asset issuers can shop for ratings -- observe...

The spectacular failure of top-rated structured finance products has brought renewed attention to the conflicts of interest of Credit Rating Agencies (CRAs). We model both the CRA conflict of understating credit risk to attract more business, and the issuer conflict of purchasing only the most...

In February 2003, the SEC officially certified a fourth credit rating agency, Dominion Bond Rating Service (quot;DBRSquot;), for use in bond investment regulations. After DBRS certification, bond yields change in the direction implied by the firm's DBRS rating relative to its ratings from other...

The thesis of this paper is that more transparent, rule-bound and subtle mechanisms for policy coordination will be needed to ensure the success of an enlarged European Union. A common policy is a public good with distributional implications. Economists have developed a large number of plausible...

In this paper, we present our view of the recent evolution of European integration. We first briefly describe the main features of the institution and decision making process in the European Union, with particular attention to the debate between federalists and super nationalists. We then...