Sovereign risk, credibility and the gold standard: 1870–1913 versus 1925–31

Maurice Obstfeld · Alan M. Taylor

196 citations0/0 files storedThe Economic Journal

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Global Financial Crisis and Policies Fiscal Policies and Political Economy Credit Risk and Financial Regulations

Abstract

What determines sovereign risk? We study the London bond market 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 up to 30 basis points from country borrowing spreads. In the 1920s, however, simply resuming prewar gold parities was insufficient to secure benefits. Countries that devalued before resumption were treated more favourably, and markets scrutinised other signals. Public debt and British Empire membership were important determinants of spreads after World War One, but not before.

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References

1991Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations 2001The World Economy 1993International Historical Statistics 1996The Gold Standard as a “Good Housekeeping Seal of Approval”1992International Historical Statistics Europe 1750–1988 1995The Gold Standard As a Rule: An Essay in Exploration 1994Credibility of Policies Versus Credibility of Policymakers

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2009Fiscal Centralization, Limited Government, and Public Revenues in Europe, 1650–1913 2014Categories, Creditworthiness, and Contagion: How Investors' Shortcuts Affect Sovereign Debt Markets 2013Empirical Research on Sovereign Debt and Default 2010Financial Integration, Investment, and Economic Growth: Evidence from Two Eras of Financial Globalization 2004A new world order: explaining the international diffusion of the gold standard, 1870–1913 2006The role of foreign currency debt in financial crises: 1880–1913 versus 1972–1997

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