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

48 Pages Posted: 21 Nov 2002  

Maurice Obstfeld

University of California, Berkeley - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Alan M. Taylor

University of California, Davis - Department of Economics; University of Virginia - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

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Date Written: November 2002

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

Obstfeld, Maurice and Taylor, Alan M., Sovereign Risk, Credibility and the Gold Standard: 1870-1913 Versus 1925-31 (November 2002). NBER Working Paper No. w9345. Available at SSRN: https://ssrn.com/abstract=353755

Maurice Obstfeld (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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HOME PAGE: http://emlab.berkeley.edu/users/obstfeld/

Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Alan M. Taylor

University of California, Davis - Department of Economics ( email )

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HOME PAGE: http://www.econ.ucdavis.edu/faculty/amtaylor/

University of Virginia - Department of Economics ( email )

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HOME PAGE: http://people.virginia.edu/~amt7u

National Bureau of Economic Research (NBER)

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United States

HOME PAGE: http://nber.org

Centre for Economic Policy Research (CEPR)

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United Kingdom

HOME PAGE: http://cepr.org

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