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

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  • Maurice Obstfeld

    (University of California, Berkeley, CEPR & NBER)

  • Alan M. Taylor

    (University of California, Davis & NBER)

  • )

Abstract

What determines sovereign risk? We study the London bond market from the 1870s to the 1930s. Our findings support conventional wisdom concerning the low credibility of the interwar gold standard. Before 1914 gold standard adherence effectively signalled credibility and shaved up to 30 basis points from country borrowing spreads. In the 1920s, however, simply resuming prewar gold parities was insufficient to secure benefits. Countries that devalued before resumption were treated more favorably, 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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Bibliographic Info

Paper provided by EconWPA in its series International Trade with number 0303001.

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Length: 46 pages
Date of creation: 25 Mar 2003
Date of revision:
Handle: RePEc:wpa:wuwpit:0303001

Note: 46 pages, Acrobat .pdf
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Web page: http://128.118.178.162

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Cited by:
  1. 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.
  2. 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.
  3. Daniela Bragoli & Camilla Ferretti & Piero Ganugi & Giancarlo Ianulardo, 2013. "Monetary regimes and statistical regularity: the Classical Gold Standard (1880-1913) through the lenses of Markov models," Discussion Papers 1301, Exeter University, Department of Economics.
  4. 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.
  5. Kevin H. O’Rourke, 2012. "From Empire to Europe: Britain in the World Economy," Oxford University Economic and Social History Series _106, Economics Group, Nuffield College, University of Oxford.
  6. 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.
  7. Ana Fostel & Sandeep Kapur & Luis Catão, 2007. "Persistent Gaps, Volatility Types, and Default Traps," IMF Working Papers 07/148, International Monetary Fund.
  8. Michael Bordo & Christopher Meissner, 2005. "Financial Crises, 1880-1913: The Role of Foreign Currency Debt," NBER Working Papers 11173, National Bureau of Economic Research, Inc.
  9. 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.
  10. 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.
  11. Niall Ferguson & Moritz Schularick, 2005. "The Empire Effect: Country Risk in the First Age of Globalization, 1880-1913," Economic History 0509002, EconWPA.
  12. Michael Tomz & Mark L. J. Wright, 2012. "Empirical research on sovereign debt and default," Working Paper Series WP-2012-06, Federal Reserve Bank of Chicago.
  13. Romain Ranciere & Ana Fostel & Luis Catao, 2011. "Sudden Stops and Sovereign Defaults," 2011 Meeting Papers 1359, Society for Economic Dynamics.
  14. 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 dell'Economia e Dell'Impresa.
  15. Christoph Trebesch, 2009. "The Cost of Aggressive Sovereign Debt Policies: How Much is thePrivate Sector Affected?," IMF Working Papers 09/29, International Monetary Fund.

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