Working Paper: NBER ID: w1772
Authors: Barry Eichengreen; Richard Portes
Abstract: This paper analyzes the "debt crisis" of the 1930s to see what light this historical experience sheds on recent difficulties in international capital markets. We first consider patterns of overseas lending and borrowing in the 1920s and 1930s, comparing the performance of standard models of foreign borrowing in this period to the 1970-80s. Next, we analyze the incidence and extent of defaulton sovereign debt, adapting models of debt capacity to the circumstances of the interwar years. We consider the choices available to investors in those foreign loans which lapsed into default in the 1930s, emphasizing the distinction between creditor banks and bond holders. Finally, we provide the first estimates of the realized rate of return on foreign loans floated between the wars, based on a sample of dollar andsterling bonds issued in the 1920s.
Keywords: debt; default; sovereign debt; international capital markets
JEL Codes: F34; N20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| debt-to-income ratio (G51) | likelihood of default (G33) |
| deterioration in terms of trade (F14) | likelihood of default (G33) |
| budget deficit (H62) | foreign exchange available for servicing external debt (F34) |
| gold reserves to currency circulation ratio (F31) | likelihood of default (G33) |