Sovereign debt guarantees and default: Lessons from the UK and Ireland, 1920-1938
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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
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
European Economic Review
© 2016 Elsevier B.V. All rights reserved. This work is made available online in accordance with the publisher’s policies. This is the author created, accepted version manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://dx.doi.org/10.1016/j.euroecorev.2016.05.010
DescriptionThis 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.
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