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Does The Past Count? Sovereign Debt During The Classical Gold Standard Through The Lenses Of Mover Stayer And Markov Chain Models

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Listed:
  • Daniela Bragoli

    (Dipartimento di Matematica per le Scienze economiche, finanziarie ed attuariali, Universita` Cattolica del Sacro Cuore, Milano)

  • Camilla Ferretti

    (Dipartimento di Scienze Economiche e Sociali, Universita` Cattolica del Sacro Cuore, Piacenza)

  • Piero Ganugi

    (Dipartimento di Ingegneria e Architettura, Universita` degli Studi di Parma, Parma)

  • Luigi Grossi

    (Dipartimento di Scienze Economiche, Universita` di Verona, Verona)

  • Giancarlo Ianulardo

    (Department of Economics, University of Exeter)

Abstract

We study sovereign debt markets behaviour during the Classical Gold Standard (CGS) Era (1880-1913), i.e. the first era of globalization characterized by free movement of capital and a fixed exchange rate regime. In particular we analyse both the issues of markets memory and the degree of confidence in sovereign debt markets by means of three stochastic models: Markov Chain (MC), Mover Stayer (MS) and Non Homogeneous Markov Chain (NHMC) estimated on two-state transition matrices of countries switching from sound to distressed. Markov Chain and Mover Stayer models beat the Non Homogeneous Markov Chain in fitting the data in the CGS period (1880-1913). This result implies both the short memory of the markets towards countries’ default history and an increased level of certainty which enables countries to better attract capital from lenders. The lessons learnt from the CGS period could also be relevant to understand sovereign debt markets in the Eurozone today given the striking similarities between the two periods.

Suggested Citation

  • Daniela Bragoli & Camilla Ferretti & Piero Ganugi & Luigi Grossi & Giancarlo Ianulardo, 2019. "Does The Past Count? Sovereign Debt During The Classical Gold Standard Through The Lenses Of Mover Stayer And Markov Chain Models," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 127(4), pages 407-432.
    • Handle: RePEc:vep:journl:y:2019:v:127:i:4:p:407-432
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    More about this item

    Keywords

    Sovereign Default; Classical Gold Standard; Markov Chain; Mover Stayer.;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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