Costs of Financing US Federal Debt: 1791-1933

George Hall, Jonathan Payne, Thomas Sargent and Bálint Szőke
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Jonathan Payne: Princeton University
Bálint Szőke: Federal Reserve Board

Working Papers from Princeton University. Economics Department.

Abstract: We use computational Bayesian methods to estimate parameters of a statistical model of gold, greenback, and real yield curves for US federal debt from 1791 to 1933. Posterior probability coverage intervals indicate more uncertainty about yields during periods in which data are especially sparse. We detect substantial discrepancies between our approximate yield curves and standard historical series on yields on US federal debt, especially during War of 1812 and Civil War surges in government expenditures that were accompanied by units of account ambiguities. We use our approximate yield curves to describe how long it took to achieve Alexander Hamilton’s goal of reducing default risk premia in US yields by building a reputation for servicing debts as promised. We infer that during the Civil War suspension of convertibility of greenback dollars into gold dollars, US creditors anticipated a rapid post war return to convertibility at par, but that after the war they anticipated a slower return.

Keywords: Big data; default premia; yield curve; units of account; gold standard; government debt; Hamiltonian Monte Carlo; Julia; DynamicHMC.jl; pricing errors; specification analysis (search for similar items in EconPapers)
JEL-codes: E31 E43 G12 N21 N41 (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-his and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pri:econom:2021-25

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