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Debt and Default in the 1930s: Causes and Consequences

  • Eichengreen, Barry
  • Portes, Richard

This paper analyzes the 'debt crisis' of the 1930s to see what light this historical experience sheds on recent difficulties in international capital markets. We first consider patterns of overseas lending and borrowing in the 1920s and 1930s, comparing the performance of standard models of foreign borrowing in this period to the 1970s-80s. Next, we analyze the incidence and extent of default on sovereign debt, adapting models of debt capacity to the circumstances of the interwar years. We consider the choices available to investors in those foreign loans which lapsed into default in the 1930s, emphasizing the distinction between creditor banks and bondholders. Finally, we provide the first estimates of the realized rate of return on foreign loans floated between the wars, based on a sample of dollar and sterling bonds issued in the 1920s.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 75.

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Date of creation: Oct 1985
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Handle: RePEc:cpr:ceprdp:75
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  1. William A. Darity, 1985. "Loan pushing : doctrine and theory," International Finance Discussion Papers 253, Board of Governors of the Federal Reserve System (U.S.).
  2. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
  3. Carlos F. Diaz-Alejandro, 1984. "Latin American Debt: I Don't Think We Are in Kansas Anymore," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 335-403.
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