Sovereign risk in the classical gold standard era

Vol: 
11/2006
Author name: 
Cameron G
Gai P
Tan KY
Year: 
2006
Month: 
March
Abstract: 

This paper explores the determinants of sovereign bond yields during the classical gold standard period (1872-1913). Using the Pooled Mean Group methodology, we find that the main benefit of the gold standard was as a short-hand device that enhanced a country’s reputation in international capital markets. By conveying important information to investors and enhancing the speed of adjustment of sovereign bond spreads to long-run equilibrium levels, the gold standard allowed country risk to be priced more effectively. In contrast to other studies, our results suggest that fundamental factors were more important in determining a country’s creditworthiness in the long-run than the exchange rate regime per se.

Publication file: 

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