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New paradigms and old promises: central banks and the market for sovereign debt in the interwar period

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  • Flores Zendejas, Juan
  • Lopez Soto, David
  • Sanchez Amador, David

Abstract

This paper analyses the motives behind the establishment of central banks during the interwar period. We argue that most governments with difficulties in accessing financial markets established central banks, as this was a general recommendation provided by contemporary money doctors. However, even if central banks served to facilitate the issue of foreign loans on the New York financial market, we find that governments with central banks did not obtain more favorable terms for those loans. Our analysis further demonstrates that investors concentrated on macroeconomic achievements such as inflation and monetary stability, and whether a lender-of-last resort facility existed, regardless of whether or not this was pursued by a central bank.

Suggested Citation

  • Flores Zendejas, Juan & Lopez Soto, David & Sanchez Amador, David, 2020. "New paradigms and old promises: central banks and the market for sovereign debt in the interwar period," Working Papers unige:129346, University of Geneva, Paul Bairoch Institute of Economic History.
  • Handle: RePEc:gnv:wpaper:unige:129346
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    References listed on IDEAS

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    1. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492, National Bureau of Economic Research, Inc.
    2. Juan H. Flores Zendejas & Yann Decorzant, 2016. "Going multilateral? Financial markets' access and the League of Nations loans, 1923–8," Economic History Review, Economic History Society, vol. 69(2), pages 653-678, May.
    3. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    4. Charles Goodhart, 1988. "The Evolution of Central Banks," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262570734, September.
    5. Singleton,John, 2010. "Central Banking in the Twentieth Century," Cambridge Books, Cambridge University Press, number 9780521899093, December.
    6. Stefano Ugolini, 2017. "The Evolution of Central Banking: Theory and History," Palgrave Studies in Economic History, Palgrave Macmillan, number 978-1-137-48525-0, December.
    7. Marcelo de Paiva Abreu & Pedro Carvalho Loureiro de Souza, 2011. ""Palatable Foreign Control": British money doctors and central banking in South America, 1924-1935," Textos para discussão 597, Department of Economics PUC-Rio (Brazil).
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    More about this item

    Keywords

    Money doctors; Central banking; Great depression; Sovereign debt;

    JEL classification:

    • N00 - Economic History - - General - - - General
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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