Sovereign debt guarantees and default: Lessons from the UK and Ireland, 1920-1938
Abstract
We study the daily yields on Irish land bonds listed on the Dublin Stock Exchange during the years 1920–1938. We exploit Irish events during the period and structural differences in land bonds to tease out a measure of investors' credibility in a UK sovereign guarantee. Using Ireland's default on intergovernmental payments in 1932, we find a premium of about 43 basis points associated with uncertainty about the UK government guarantee. We discuss the economic and political forces behind the Irish and UK governments' decisions pertaining to the default. Our finding has implications for modern-day proposals to issue jointly-guaranteed sovereign debt. ‘Further, in view of all the historical circumstances, it is not equitable that the Irish people should be obliged to pay away these moneys’ - Eamon De Valera, 12 October 1932
Citation
Foley-Fisher , N & McLaughlin , E 2016 , ' Sovereign debt guarantees and default: Lessons from the UK and Ireland, 1920-1938 ' , European Economic Review , vol. 87 , pp. 272-286 . https://doi.org/10.1016/j.euroecorev.2016.05.010
Publication
European Economic Review
Status
Peer reviewed
ISSN
0014-2921Type
Journal article
Description
This research is part of a wider project,“A messy divorce? Irish debt and default, 1891-1938”, conducted by McLaughlin as a Leverhulme Early Career Fellow.Collections
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