Over the last few years Standard and Poor's, a financial services company and credit-rating agency, has downgraded, or threatened to downgrade, the credit rating for several nations around the globe. “It's always possible the rating will come back for many of these countries, but we don't think it's coming back anytime soon,” said David Beers, head of S&P's government debt rating unit. To identify nations likely to suffer this re-evaluation, data on 45 countries are collected and a logit function seen here results:

where D is the nation's public debt measured in trillions of dollars and DR is the debt ratio to GNP. t-values are in parentheses.

a. Interpret the coefficients.

b. If a nation has debt of 3.7 and a debt-to-GNP ratio of 0.85 how likely is it to suffer re-evaluation?

Transcribed Image Text:

Z, -3.56 +1.25D+0.65DR (3.25) 12.55 (5.66)