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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 limited credibility of the interwar gold standard. Before 1914, gold standard adherence effectively signalled credibility and shaved 40 to 60 basis points from country borrowing spreads. In the 1920s, however, simply resuming prewar gold parities was insufficient to secure such benefits. Countries that devalued before resumption were treated favourably, 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," CEPR Discussion Papers 3688, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3688
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    References listed on IDEAS

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    More about this item

    Keywords

    credibility; exchange rates; gold standard; monetary regimes; sovereign risk;

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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