Identifying the effects of an exchange rate depreciation on country risk: Evidence from a natural experiment

Michael D. Bordo, Christopher M. Meissner, Marc D. Weidenmier

Research output: Contribution to journalArticlepeer-review

13 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)1022-1044
Number of pages23
JournalJournal of International Money and Finance
Volume28
Issue number6
DOIs
StatePublished - Oct 2009

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Keywords

  • Bimetallism
  • Foreign currency debt
  • Gold standard
  • Sovereign risk

Fingerprint

Dive into the research topics of 'Identifying the effects of an exchange rate depreciation on country risk: Evidence from a natural experiment'. Together they form a unique fingerprint.

Cite this