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Sovereign Risk in the Classical Gold Standard Era *
Author(s) -
GAI PRASANNA,
CAMERON GAVIN,
YONG TAN KANG
Publication year - 2009
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.2009.00569.x
Subject(s) - sovereignty , gold standard (test) , bond , economics , convergence (economics) , risk premium , financial economics , credit risk , monetary economics , actuarial science , macroeconomics , finance , statistics , mathematics , political science , politics , law
This paper reassesses the determinants of sovereign bond yields during the classical gold standard period (1872–1913) using the pooled mean group methodology. We find that, rather than lowering risk premia directly, membership of the gold standard hastened the convergence of sovereign bond spreads to their long‐run equilibrium levels. Our results also suggest that investors looked beyond the gold standard to country‐specific fundamental factors when pricing and differentiating sovereign risk.