TY  - JOUR
AU  - Mitchener,Kris James
AU  - Weidenmier,Marc D.
TI  - Are Hard Pegs Ever Credible in Emerging Markets? Evidence from the Classical Gold Standard
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15401
PY  - 2009
Y2  - October 2009
UR  - http://www.nber.org/papers/w15401
L1  - http://www.nber.org/papers/w15401.pdf
N1  - Author contact info:
Kris James Mitchener
Department of Economics
Leavey School of Business
Santa Clara University
Santa Clara, CA 95053
Tel: 408/554-4340
Fax: 408/554-2331
E-Mail: kmitchener@scu.edu

Marc D. Weidenmier
Robert Day School of Economics and Finance
Claremont McKenna College
500 East Ninth Street
Claremont, CA 91711
Tel: 909/607-8497
Fax: 909/621-8249
E-Mail: marc_weidenmier@claremontmckenna.edu
AB  - 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.
ER  -