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Did gold-standard adherence reduce sovereign capital costs?

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  • Alquist, Ron
  • Chabot, Benjamin

Abstract

A commonly cited benefit of the classical gold standard is that it reduced borrowing costs by signaling a country's commitment to financial probity. Using a new dataset, this paper tests whether gold-standard adherence was negatively correlated with the cost of capital. Conditional on UK risk factors, there is no evidence that the bonds issued by countries off gold earned systematically higher excess returns than the bonds issued by countries on gold. This conclusion is robust to allowing betas to differ across exchange-rate regimes; to including other determinants of the country risk premium; and to controlling for the British Empire effect.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 58 (2011)
Issue (Month): 3 ()
Pages: 262-272

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Handle: RePEc:eee:moneco:v:58:y:2011:i:3:p:262-272

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Web page: http://www.elsevier.com/locate/inca/505566

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  1. John Y. Campbell, 1995. "Some Lessons from the Yield Curve," Harvard Institute of Economic Research Working Papers 1713, Harvard - Institute of Economic Research.
  2. Bohn, Henning, 1991. "Time consistency of monetary policy in the open economy," Journal of International Economics, Elsevier, vol. 30(3-4), pages 249-266, May.
  3. Paolo Mauro & Yishay Yafeh, 2003. "The Corporation of Foreign Bondholders," IMF Working Papers 03/107, International Monetary Fund.
  4. Bordo Michael D. & Kydland Finn E., 1995. "The Gold Standard As a Rule: An Essay in Exploration," Explorations in Economic History, Elsevier, vol. 32(4), pages 423-464, October.
  5. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
  6. Elton, Edwin J & Gruber, Martin J & Blake, Christopher R, 1995. " Fundamental Economic Variables, Expected Returns, and Bond Fund Performance," Journal of Finance, American Finance Association, vol. 50(4), pages 1229-56, September.
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Cited by:
  1. Michael Tomz & Mark L. J. Wright, 2013. "Empirical Research on Sovereign Debt and Default," CAMA Working Papers 2013-16, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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