Identifying the effects of an exchange rate depreciation on country risk: Evidence from a natural experiment
A natural experiment is used to study exchange rate depreciation and perceived sovereign risk. France suspended coinage of silver in 1876 provoking a significant exogenous depreciation of all silver standard countries versus gold standard currencies like the British pound - the currency in which their debt was payable. The evidence suggests an exchange rate depreciation can significantly increase sovereign risk if a country is exposed to foreign currency debt. We implement a difference-in-differences estimator and find that the average silver country's spread on hard currency debt increased over ten percent relative to non-silver countries.
Year of publication: |
2009
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Authors: | Bordo, Michael D. ; Meissner, Christopher M. ; Weidenmier, Marc D. |
Published in: |
Journal of International Money and Finance. - Elsevier, ISSN 0261-5606. - Vol. 28.2009, 6, p. 1022-1044
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Publisher: |
Elsevier |
Keywords: | Foreign currency debt Bimetallism Gold standard Sovereign risk |
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