6533b829fe1ef96bd12896da

RESEARCH PRODUCT

Probabilistic European Country Risk Score Forecasting Using a Diffusion Model

Francisco-josé SantonjaRachad M. ShoucriA. Sánchez-sánchezJuan Carlos CortésRafael J. VillanuevaRoberto Cervelló-royo

subject

Credit ratingActuarial sciencePolitical riskOrder (exchange)Contagion effectFinancial economicsFinancial riskAgency (sociology)Probabilistic logicEconomicsCountry risk

description

Over the last few years, global crisis has shaken confidence in most European economies. As a consequence, a lack of confidence has spread amongst European countries leading to Europe’s financial instability. Therefore, forecasting the next future of economic situation involves high levels of uncertainty. In this respect, it would be interesting to use tools which allow to predict the trends and evolution of each country’s confidence rating. The Country Risk Score (CRS) represents a good indicator to measure the current situation of a country regarding measures of economic, political and financial Risk in order to determine country Risk ratings. CRS is underscored by Euromoney Agency and is calculated by assigning weights to these measures. In this contribution, we present a diffusion model to study the dynamics of the CRS in 27 European countries which considers both the endogenous effect of each country policies and the contagion effect among them. The model depicts quite well the evolution of the CRS despite jumps and uncertainty in the data within some periods. Furthermore, it should be noted a downward trend in the CRS dynamics for almost all European countries in the next year.

yearjournalcountryeditionlanguage
2013-11-01
https://doi.org/10.1007/978-3-319-01285-8_4