Sovereign Risk, Credibility and the Gold Standard

Sovereign Risk, Credibility and the Gold Standard

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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 beforeItaly: 1919-30 from Investora#39;s Monthly Manual and The Times. The bond quoted is the Maremmana Railway Bond issued in London and payable in sterling pounds. Japan: From GFD. The bonds quoted are the 9s (1870-72); the 7s (1873-97)anbsp;...

Title:Sovereign Risk, Credibility and the Gold Standard
Author: Maurice Obstfeld, Alan M. Taylor
Publisher: - 2002

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