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Sovereign Risk, Credibility and the Gold Standard: 1870-1913 versus 1925-31

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Author Info
Obstfeld, Maurice
Taylor, Alan M

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Abstract

What determines sovereign risk? We study the London bond market from the 1870s to the 1930s. Our findings support conventional wisdom concerning the limited credibility of the interwar gold standard. Before 1914, gold standard adherence effectively signalled credibility and shaved 40 to 60 basis points from country borrowing spreads. In the 1920s, however, simply resuming prewar gold parities was insufficient to secure such benefits. Countries that devalued before resumption were treated favourably, and markets scrutinized other signals. Public debt and British Empire membership were important determinants of spreads after World War One, but not before.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3688.

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Date of creation: Jan 2003
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Handle: RePEc:cpr:ceprdp:3688

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Related research
Keywords: credibility; exchange rates; gold standard; monetary regimes; sovereign risk;

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Find related papers by JEL classification:
F20 - International Economics - - International Factor Movements and International Business - - - General
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
N10 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations - - - General, International, or Comparative
N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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  6. Matthew T. Jones and Maurice Obstfeld., 1997. "Saving, Investment, and Gold: A Reassessment of Historical Current Account Data," Center for International and Development Economics Research (CIDER) Working Papers C97-094, University of California at Berkeley.
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Accominotti, Olivier & Flandreau, Marc & Rezzik, Riad & Zumer, Frédéric, 2008. "Black Man’s Burden: Measured Philanthropy in the British Empire, 1880-1913," CEPR Discussion Papers 6811, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Kris James Mitchener & Masato Shizume & Marc D. Weidenmier, 2008. "Why did Countries Adopt the Gold Standard? Lessons from Japan," Discussion Paper Series 228, Research Institute for Economics & Business Administration, Kobe University. [Downloadable!]
  3. Niall Ferguson & Moritz Schularick, 2005. "The Empire Effect: Country Risk in the First Age of Globalization, 1880-1913," Economic History 0509002, EconWPA. [Downloadable!]
  4. Christopher M Meissner & Michael D Bordo, 2006. "Financial Crises, 1880-1913: The Role of Foreign Currency Debt," WEF Working Papers 0002, ESRC World Economy and Finance Research Programme, Birkbeck, University of London. [Downloadable!]
    Other versions:
  5. Wolf, Nikolaus, 2008. "Scylla and Charybdis. Explaining Europe’s Exit from Gold, January 1928- December 1936," CEPR Discussion Papers 6685, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Christopher M Meissner & Michael D Bordo, 2006. "The Role of Foreign Currency Debt in Financial Crises: 1880-1913 vs. 1972-1997," WEF Working Papers 0001, ESRC World Economy and Finance Research Programme, Birkbeck, University of London. [Downloadable!]
    Other versions:
  7. Prasanna Gai & Kang-yong Tan, 2004. "Good Housekeeping? Reputation, Fixed Exchange Rates, and the 'Original Sin' Problem," Working Papers 082004, Hong Kong Institute for Monetary Research. [Downloadable!]
    Other versions:
  8. Filippo Cesarano & Giulio Cifarelli & Gianni Toniolo, 2009. "Exchange Rate Regimes and Reserve Policy on the Periphery: The Italian Lira 1883-1911," Working Papers Series wp2009_11.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze Economiche. [Downloadable!]
  9. Michael D Bordo & Christopher M Meissner & Marc D Weidenmier, 2006. "Currency Mismatches, Default Risk, and Exchange Rate Depreciation: Evidence from the End of Bimetallism," WEF Working Papers 0010, ESRC World Economy and Finance Research Programme, Birkbeck, University of London. [Downloadable!]
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  10. Christoph Trebesch, 2009. "The Cost of Aggressive Sovereign Debt Policies: How Much is thePrivate Sector Affected?," IMF Working Papers 09/29, International Monetary Fund. [Downloadable!]
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