Costs of Financing U.S. Federal Debt under a Gold Standard: 1791-1933

Jonathan Payne; Bálint Szoke; George Hall; Thomas J. Sargent

doi:10.1093/qje/qjae028

Costs of Financing U.S. Federal Debt under a Gold Standard: 1791-1933

Jonathan Payne, Bálint Szoke, George Hall, Thomas J. Sargent

Economics

Princeton University

Research output: Contribution to journal › Article › peer-review

Abstract

From a new data set, we infer time series of term structures of yields on U.S. federal bonds during the gold standard era from 1791-1933 and use our estimates to reassess historical narratives about how the United States expanded its fiscal capacity. We show that U.S. debt carried a default risk premium until the end of the nineteenth century, when it started being priced as an alternative safe asset to U.K. debt. During the Civil War, investors expected the United States to return to a gold standard so the federal government was able to borrow without facing denomination risk. After the introduction of the National Banking System, the slope of the yield curve switched from down to up and the premium on U.S. debt with maturity less than one year disappeared.

Original language	American English
Pages (from-to)	793-833
Number of pages	41
Journal	Quarterly Journal of Economics
Volume	140
Issue number	1
DOIs	https://doi.org/10.1093/qje/qjae028
State	Published - Feb 1 2025

ASJC Scopus subject areas

Economics and Econometrics

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abstract = "From a new data set, we infer time series of term structures of yields on U.S. federal bonds during the gold standard era from 1791-1933 and use our estimates to reassess historical narratives about how the United States expanded its fiscal capacity. We show that U.S. debt carried a default risk premium until the end of the nineteenth century, when it started being priced as an alternative safe asset to U.K. debt. During the Civil War, investors expected the United States to return to a gold standard so the federal government was able to borrow without facing denomination risk. After the introduction of the National Banking System, the slope of the yield curve switched from down to up and the premium on U.S. debt with maturity less than one year disappeared.",

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Costs of Financing U.S. Federal Debt under a Gold Standard: 1791-1933

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