Are Credit Rating Agencies Trusthworthy?

Credit rating agencies (CRAs) are companies that assign credit rating to an issuer of certain type of debt obligation. The role of credit rating agencies is to evaluate the probability of default in paying back the loan or debt. When assigning a credit rating for countries, there are taken several factors into consideration such as GDP per capita, real growth of GDP, country's debt to GDP an many more. Therefore, in this paper, we try to estimate an econometric model that finds relationship between categorical dependent variable and set of quantitative explanatory variables and forecast the likelihoods of assigning a certain grade of rating. Since the model cannot be estimated by classic linear models, we use multinomial logistic regression and estimate regression coefficients by maximum likelihood method.