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“The Thin Film Of Gold”: The Limits Of Monetary Commitments

Author

Listed:
  • Moritz Schularick

    (Free University of Berlin)

  • Niall Ferguson

    (Harvard University)

Abstract

Can developing countries enhance credibility with international markets by adopting a hard currency peg? In this paper we review the hypothesis that adherence to the gold standard facilitated the access of peripheral countries to European capital markets in the first era of financial globalization. To test whether the gold standard worked as a credible commitment mechanism – a “good housekeeping seal of approval” – we have assembled the largest possible dataset covering almost the entire foreign borrowing in the London market. Our results suggest that the gold effect identified in previous studies was a statistical illusion generated principally by limited country samples. The market looked behind ‘the thin film of gold’ not only at economic fundamentals but at political determinants of creditworthiness.

Suggested Citation

  • Moritz Schularick & Niall Ferguson, 2005. "“The Thin Film Of Gold”: The Limits Of Monetary Commitments," Macroeconomics 0509009, EconWPA.
  • Handle: RePEc:wpa:wuwpma:0509009
    Note: Type of Document - pdf; pages: 30
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    Cited by:

    1. Mitchener, Kris James & Shizume, Masato & Weidenmier, Marc D., 2010. "Why did Countries Adopt the Gold Standard? Lessons from Japan," The Journal of Economic History, Cambridge University Press, vol. 70(01), pages 27-56, March.
    2. Kris James Mitchener & Marc D. Weidenmier, 2009. "Are Hard Pegs Ever Credible in Emerging Markets? Evidence from the Classical Gold Standard," NBER Working Papers 15401, National Bureau of Economic Research, Inc.
    3. Elias Papaioannou & Richard Portes, 2008. "The international role of the euro: a status report," European Economy - Economic Papers 2008 - 2015 317, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

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