Identifying the effects of an exchange rate depreciation on country risk: Evidence from a natural experiment
AbstractA natural experiment is used to study exchange rate depreciation and perceived sovereign risk. France suspended coinage of silver in 1876 provoking a significant exogenous depreciation of all silver standard countries versus gold standard currencies like the British pound - the currency in which their debt was payable. The evidence suggests an exchange rate depreciation can significantly increase sovereign risk if a country is exposed to foreign currency debt. We implement a difference-in-differences estimator and find that the average silver country's spread on hard currency debt increased over ten percent relative to non-silver countries.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Money and Finance.
Volume (Year): 28 (2009)
Issue (Month): 6 (October)
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Web page: http://www.elsevier.com/locate/inca/30443
Foreign currency debt Bimetallism Gold standard Sovereign risk;
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