Are Hard Pegs Ever Credible in Emerging Markets? Evidence from the Classical Gold Standard

Kris James Mitchener and Marc Weidenmier ()

No 15401, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using a new database of weekly sovereign debt prices of paper currency and pound sterling (or gold) denominated debt, we identify the currency-risk component of sovereign yield spreads for nine of the largest emerging market borrowers for the period 1870-1913. Five years after a country joined the gold standard, paper currency bonds traded at significantly higher interest rates (more than 400 basis points on average) than a country’s foreign currency debt denominated in pound sterling. Investors also expected exchange rates to fall by roughly 20 percent even after emerging market borrowers had joined the gold standard. The presence of persistent positive currency risk premiums long after gold standard adoption suggests that hard pegs for emerging market borrowers may never be fully credible.

JEL-codes: F2 F33 F36 F41 N10 N20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-his and nep-mon
Date: 2009-10
Note: DAE IFM
View list of references

Downloads: (external link)
http://www.nber.org/papers/w15401.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:nbr:nberwo:15401

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w15401
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().