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Olivier Blanchard

Olivier Blanchard

Peterson Institute for International Economics, Paris School of Economics

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Ratings, Debt, and Deficits: An Exploration

Macro & Public Finance

Ratings, Debt, and Deficits: An Exploration

by Dr. Prachi Mishra, Daniel Leigh, Olivier Blanchard

We look at the effects of debt and primary fiscal balances on sovereign credit ratings through the lens of a simple model. We find that the ratings differ from the implications of the model in three important ways. They give much more weight to debt relative to forecast primary balances. They understate the effects of the difference between the interest rate and the growth rate. They give a very large role to country effects. For the same level of debt and forecast primary balances, they imply extremely different ratings across countries, and imply extremely different levels of debt needed to reach a given rating.

29 September, 2026

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