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Did gold-standard adherence reduce sovereign capital costs?

  • Alquist, Ron
  • Chabot, Benjamin

A commonly cited benefit of the classical gold standard is that it reduced borrowing costs by signaling a country's commitment to financial probity. Using a new dataset, this paper tests whether gold-standard adherence was negatively correlated with the cost of capital. Conditional on UK risk factors, there is no evidence that the bonds issued by countries off gold earned systematically higher excess returns than the bonds issued by countries on gold. This conclusion is robust to allowing betas to differ across exchange-rate regimes; to including other determinants of the country risk premium; and to controlling for the British Empire effect.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 58 (2011)
Issue (Month): 3 ()
Pages: 262-272

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Handle: RePEc:eee:moneco:v:58:y:2011:i:3:p:262-272
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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  2. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
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  4. Campbell, John, 1995. "Some Lessons from the Yield Curve," Scholarly Articles 3163264, Harvard University Department of Economics.
  5. Bohn, Henning, 1991. "Time consistency of monetary policy in the open economy," Journal of International Economics, Elsevier, vol. 30(3-4), pages 249-266, May.
  6. Bordo Michael D. & Kydland Finn E., 1995. "The Gold Standard As a Rule: An Essay in Exploration," Explorations in Economic History, Elsevier, vol. 32(4), pages 423-464, October.
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