Sovereign Debt Guarantees and Default: Lessons from the UK and Ireland, 1920-1938

31 Pages Posted: 18 Mar 2020

See all articles by Nathan Foley-Fisher

Nathan Foley-Fisher

Board of Governors of the Federal Reserve System

Eoin McLaughlin

University of St. Andrews

Date Written: August 2016

Abstract

We study the daily yields on Irish land bonds listed on the Dublin Stock Exchange during the years 1920–1938. We exploit Irish events during the period and structural differences in land bonds to tease out a measure of investors׳ credibility in a UK sovereign guarantee. Using Ireland׳s default on intergovernmental payments in 1932, we find a premium of about 43 basis points associated with uncertainty about the UK government guarantee. We discuss the economic and political forces behind the Irish and UK governments׳ decisions pertaining to the default. Our finding has implications for modern-day proposals to issue jointly-guaranteed sovereign debt.

Keywords: Irish land bonds, Dublin Stock Exchange, Sovereign default, Debt guarantees

JEL Classification: N23, N24, G15

Suggested Citation

Foley-Fisher, Nathan and McLaughlin, Eoin, Sovereign Debt Guarantees and Default: Lessons from the UK and Ireland, 1920-1938 (August 2016). European Economic Review, Vol. 87, 2016, Available at SSRN: https://ssrn.com/abstract=3542351

Nathan Foley-Fisher (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Eoin McLaughlin

University of St. Andrews

North St
Saint Andrews, Fife KY16 9AJ
United Kingdom

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