Determinants of sovereign credit risk: the case of Russia

The article analyses external and domestic determinants of Russian sovereign credit risk from January 2001 to May 2015. The analysis is conducted in a time series framework, involving the ARDL approach and VECM model. External risk factors outperform domestic fundamentals. The VIX index and oil prices are the most important factors, followed by the Fitch credit rating changes and TED spread. There is evidence for the piggyback effect by S&P whose credit rating changes are driven by Fitch Ratings and Moody's decisions. Among macroeconomic fundamentals only exchange rate dynamics and foreign reserves appear significant. The importance of the fundamentals further decreases when Granger (no) causality tests are conducted. The findings reveal a limited role of domestic macroeconomic policy in curbing Russian sovereign credit risk.