Unintended Bankers: U.S. Troop Deployments and Sovereign Credit Ratings
Kern, Andreas T
Policy makers have voiced concern that moral hazard played a role in driving financial crises. In the context of the global economy, sovereign countries may have received a credit boost in the form of U.S. support. This support has been observed through various mechanisms for political proximity. One of these has been the deployment of U.S. troops. As troop deployment serves as a major cost to the United States, it serves as a signal to market that the United States maintains a major strategic interest in the well being of a country and that it is willing to provide a bailout. I hypothesize that this spurs sovereign credit rating agencies into assigning more generous sovereign ratings for countries hosting U.S. troops. I find that a one percent increase in U.S. troop deployment increases sovereign credit rating by nearly 14 percent. I also find that hosting U.S troops is correlated with lower bond spreads and lower interest on government securities, which protects against the argument of reverse causality.
Showing items related by title, author, creator and subject.
BOOTS ON THE GROUND AND DEFENSE SPENDING: THE IMPACTS OF U.S. TROOP DEPLOYMENTS ON DEFENSE SECTOR SPENDING OF HOST NATIONS Zomorrodian, Mahmood Reza (Georgetown University, 2017)U.S. troop deployments have been a staple of U.S. foreign policy and power projection since the conclusion of the cold war. American troops, as a result of this policy, have seen deployments across all parts of the world ...
Garner, Thomas Nathaniel (Georgetown University, 2014)Since the end of the Second World War, US troops have served as a powerful tool of US foreign policy. Although there seems to be overwhelming anecdotal evidence indicating the effectiveness of US military intervention in ...
SOVEREIGN CREDIT RATING NEWS AND FINANCIAL MARKETS FLUCTUATIONS: EVIDENCE FROM THE EUROPEAN MARKET Lai, Yun (Georgetown University, 2013)Since the 2008 financial crisis, credit rating agencies have faced criticism that their ratings led to and exacerbated the financial crisis rather than helping the market have better knowledge of potential risks embedded ...