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

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  • Obstfeld, Maurice
  • Taylor, Alan M.

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.

Suggested Citation

  • Obstfeld, Maurice & Taylor, Alan M., 2003. "Sovereign Risk, Credibility and the Gold Standard: 1870-1913 versus 1925-31," Center for International and Development Economics Research, Working Paper Series qt6f15n0h0, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    • Handle: RePEc:cdl:ciders:qt6f15n0h0
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    References listed on IDEAS

    as
    1. Maurice Obstfeld & Alan M. Taylor, 2003. "Globalization and Capital Markets," NBER Chapters, in: Globalization in Historical Perspective, pages 121-188, National Bureau of Economic Research, Inc.
    2. 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.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Gold standard; sovereign risk; credibility; monetary regimes; exchange rates;
    All these keywords.

    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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