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

Obstfeld, Maurice; Taylor, Alan M.

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

50 Pages Posted: 29 Jan 2003

See all articles by Maurice Obstfeld

Maurice Obstfeld

University of California, Berkeley; Peterson Institute for International Economics; National Bureau of Economic Research; Centre for Economic Policy Research

Alan M. Taylor

Columbia University; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

There are 2 versions of this paper

Date Written: January 2003

Abstract

What determines sovereign risk? We study the London bond market from the 1870s to the 1930s. Our findings support conventional wisdom concerning the limited 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 favourably, and markets scrutinized other signals. Public debt and British Empire membership were important determinants of spreads after World War One, but not before.

Keywords: Gold standard, sovereign risk, credibility, monetary regimes, exchange rates

JEL Classification: F20, F33, F36, F41, N10, N20

Suggested Citation: Suggested Citation

Obstfeld, Maurice and Taylor, Alan M., Sovereign Risk, Credibility and the Gold Standard: 1870-1913 Versus 1925-31 (January 2003). Available at SSRN: https://ssrn.com/abstract=374400