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Debt and Default in the 1930s: Causes and Consequences

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Barry J. Eichengreen
Richard Portes

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Abstract

This paper analyzes the "debt crisis" of the 1930s to see what light this historical experience sheds on recent difficulties in international capital markets. We first consider patterns of overseas lending and borrowing in the 1920s and 1930s, comparing the performance of standard models of foreign borrowing in this period to the 1970-80s. Next, we analyze the incidence and extent of defaulton sovereign debt, adapting models of debt capacity to the circumstances of the interwar years. We consider the choices available to investors in those foreign loans which lapsed into default in the 1930s, emphasizing the distinction between creditor banks and bond holders. Finally, we provide the first estimates of the realized rate of return on foreign loans floated between the wars, based on a sample of dollar andsterling bonds issued in the 1920s.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1772.

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Date of creation: Dec 1986
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Handle: RePEc:nbr:nberwo:1772

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References listed on IDEAS
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  1. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Blackwell Publishing, vol. 48(2), pages 289-309, April. [Downloadable!] (restricted)
  2. William A. Darity, 1985. "Loan pushing : doctrine and theory," International Finance Discussion Papers 253, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  1. Laura Alfaro & Fabio Kanczuk, 2006. "Deuda soberana: indexación y vencimiento," RES Working Papers 4460, Inter-American Development Bank, Research Department. [Downloadable!]
  2. Sule Ozler, 1988. "Evolution of Commerical Bank Lending to Developing Countries," UCLA Economics Working Papers 497, UCLA Department of Economics. [Downloadable!]
  3. Menbere Workie Tiruneh, 2004. "An Empirical Investigation Into The Determinants Of External Indebtedness," Prague Economic Papers, University of Economics, Prague, vol. 2004(3), pages 261-277. [Downloadable!] (restricted)
  4. Laura Alfaro & Fabio Kanczuk, 2006. "Sovereign Debt: Indexation and Maturity," RES Working Papers 4459, Inter-American Development Bank, Research Department. [Downloadable!]
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