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

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Listed:
  • Maurice Obstfeld
  • Alan M. Taylor

Abstract

What determines sovereign risk? We study the London bondmarket 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 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 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

  • Maurice Obstfeld & Alan M. Taylor, 2002. "Sovereign Risk, Credibility and the Gold Standard: 1870-1913 versus 1925-31," NBER Working Papers 9345, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:9345
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    References listed on IDEAS

    as
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    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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    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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