Identifying the effects of an exchange rate depreciation on country risk: Evidence from a natural experiment
A natural experiment is used to study exchange rate depreciation and perceived sovereign risk. France suspended coinage of silver in 1876 provoking a significant exogenous depreciation of all silver standard countries versus gold standard currencies like the British pound - the currency in which their debt was payable. The evidence suggests an exchange rate depreciation can significantly increase sovereign risk if a country is exposed to foreign currency debt. We implement a difference-in-differences estimator and find that the average silver country's spread on hard currency debt increased over ten percent relative to non-silver countries.
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.:
- Reinhart, Carmen, 2004.
"Debt intolerance: Executive summary,"
13398, University Library of Munich, Germany.
- Flandreau, Marc, 1996. "The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880," The Journal of Economic History, Cambridge University Press, vol. 56(04), pages 862-897, December.
- Nugent, Jeffrey B, 1973. "Exchange-Rate Movements and Economic Development in the Late Nineteenth Century," Journal of Political Economy, University of Chicago Press, vol. 81(5), pages 1110-1135, Sept.-Oct.
- Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2003. "Currency Mismatches, Debt Intolerance and Original Sin: Why They Are Not the Same and Why it Matters," NBER Working Papers 10036, National Bureau of Economic Research, Inc.
- C. F. Remer, 1926. "International Trade between Gold and Silver Countries: China, 1885–1913," The Quarterly Journal of Economics, Oxford University Press, vol. 40(4), pages 597-643.
- Oppers, S.E., 1994.
"Was the Worldwide Shift to Gold Inevitable? An Analysis of the End pf Bimetalism,"
351, Research Seminar in International Economics, University of Michigan.
- Oppers, Stefan Erik, 1996. "Was the worldwide shift to gold inevitable? An analysis of the end of bimetallism," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 143-162, February.
- Luis Felipe Céspedes & Roberto Chang & Andrés Velasco, 2004.
"Balance Sheets and Exchange Rate Policy,"
American Economic Review,
American Economic Association, vol. 94(4), pages 1183-1193, September.
- Flandreau, Marc & Sussman, Nathan, 2004. "Old Sins: Exchange Rate Clauses and European Foreign Lending in the 19th Century," CEPR Discussion Papers 4248, C.E.P.R. Discussion Papers.
- Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
- Hanson, John R, II, 1975. "Exchange-Rate Movements and Economic Development in the Late Nineteenth Century: A Critique," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 859-862, August.
- Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004.
"How Much Should We Trust Differences-In-Differences Estimates?,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 119(1), pages 249-275.
- Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc.
- Friedman, Milton, 1990. "Bimetallism Revisited," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 85-104, Fall.
- Michael D. Bordo & Christopher Meissner & Angela Redish, 2003. "How "Original Sin" was Overcome: The Evolution of External Debt Denominated in Domestic Currencies in the United States and the British Dominions," NBER Working Papers 9841, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:eee:jimfin:v:28:y:2009:i:6:p:1022-1044. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If references are entirely missing, you can add them using this form.