Contagion is when a bad credit event in one country spills over and infects other countries that would not otherwise have experienced credit problems. Contagion has attracted considerable research interest without any consensus on how to measure it or whether it exists at all. This article adds to the discussion by studying the impact of a rating agency's downgrade of one country's sovereign debt on its neighbors. Earlier research has mostly focused on defaults, which are rare; here the authors develop a richer data set by looking at how rating changes impact both credit default swap spreads and stock market returns. They find that one country's downgrade raises CDS spreads for other countries in the same region and also for countries at a comparable level of economic development. Positive credit events have a much smaller impact than negative ones and the state of the macroeconomy is relevant as well, with weaker economies experiencing greater contagion.