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Sovereign risk, credibility and the gold standard: 1870-1913 versus 1925-31

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  • Maurice Obstfeld
  • Alan M. Taylor

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 favourably, and markets scrutinised other signals. Public debt and British Empire membership were important determinants of spreads after World War One, but not before. Copyright 2003 Royal Economic Society.

Suggested Citation

  • Maurice Obstfeld & Alan M. Taylor, 2003. "Sovereign risk, credibility and the gold standard: 1870-1913 versus 1925-31," Economic Journal, Royal Economic Society, vol. 113(487), pages 241-275, April.
  • Handle: RePEc:ecj:econjl:v:113:y:2003:i:487:p:241-275
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    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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