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Original sin and the great depression

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  • Bordo, Michael D.
  • Meissner, Christopher M.

Abstract

Do exchange rate movements matter for how markets price foreign currency denominated sovereign bonds? High-frequency bond price data from 1931 show that depreciation against the dollar/gold was associated with elevated risk premia on US dollar/gold public debt. We use a theoretical model to illustrate how foreign currency debt influences exchange rate policy and foreign currency bond prices. We use these theoretical results, the timing of sterling's devaluation in September 1931, and historically determined fundamentals to identify the impact of exchange rate policy on hard-currency bond yields in the Great Depression.

Suggested Citation

  • Bordo, Michael D. & Meissner, Christopher M., 2023. "Original sin and the great depression," Journal of International Economics, Elsevier, vol. 145(C).
    • Handle: RePEc:eee:inecon:v:145:y:2023:i:c:s0022199623001009
    DOI: 10.1016/j.jinteco.2023.103814
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    1. Eichengreen, Barry & Irwin, Douglas A., 2010. "The Slide to Protectionism in the Great Depression: Who Succumbed and Why?," The Journal of Economic History, Cambridge University Press, vol. 70(4), pages 871-897, December.
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    3. Bordo, Michael D. & Meissner, Christopher M. & Weidenmier, Marc D., 2009. "Identifying the effects of an exchange rate depreciation on country risk: Evidence from a natural experiment," Journal of International Money and Finance, Elsevier, vol. 28(6), pages 1022-1044, October.
    4. Wandschneider, Kirsten, 2008. "The Stability of the Interwar Gold Exchange Standard: Did Politics Matter?," The Journal of Economic History, Cambridge University Press, vol. 68(1), pages 151-181, March.
    5. Wolf, Nikolaus, 2008. "Scylla and Charybdis. Explaining Europe's exit from gold, January 1928-December 1936," Explorations in Economic History, Elsevier, vol. 45(4), pages 383-401, September.
    6. Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001. "Is the crisis problem growing more severe?," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 16(32), pages 52-82.
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    8. Chiţu, Livia & Eichengreen, Barry & Mehl, Arnaud, 2014. "When did the dollar overtake sterling as the leading international currency? Evidence from the bond markets," Journal of Development Economics, Elsevier, vol. 111(C), pages 225-245.
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    Cited by:

    1. Scott Regifère MOUANDAT, 2022. "Asymétrie des Monnaies : Quel Effet sur la Dette Publique des pays membres de la CEMAC ?," Journal of Academic Finance, RED research unit, university of Gabes, Tunisia, vol. 13(1), pages 62-83, June.

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    More about this item

    Keywords

    Foreign currency debt; Exchange rate policy; Gold standard; Great depression;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • N2 - Economic History - - Financial Markets and Institutions

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