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Working Paper
Did adhering to the gold standard reduce the cost of capital?
A commonly cited benefit of the pre-World War One gold standard is that it reduced the cost of international borrowing by signaling a country?s commitment to financial probity. Using a newly constructed data set that consists of more than 55,000 monthly sovereign bond returns, we test if gold-standard adherence was negatively correlated with the cost of capital. Conditional on UK risk factors, we find no evidence that the bonds issued by countries off gold earned systematically higher excess returns than the bonds issued by countries on gold. Our results are robust to allowing betas to differ ...
Working Paper
Foreign Reserve Management and U.S. Money Market Liquidity: A Cost of Exorbitant Privilege
We show theoretically and empirically that the dollar’s status as the global reserve currencycan lead to economically significant changes in U.S. money market liquidity. We develop amodel in which U.S. money market spreads respond to foreign central banks’ exchange-ratemanagement decisions. Foreign central banks remove liquidity from U.S. money markets andcause spreads to widen by selling Treasuries to supply liquidity to their financial systems.Our analysis focuses on the major oil exporting countries with fixed exchange rates becausetheir foreign-exchange market interventions are ...
Working Paper
Forecasting the price of oil
We address some of the key questions that arise in forecasting the price of crude oil. What do applied forecasters need to know about the choice of sample period and about the tradeoffs between alternative oil price series and model specifications? Are real or nominal oil prices predictable based on macroeconomic aggregates? Does this predictability translate into gains in out-of-sample forecast accuracy compared with conventional no-change forecasts? How useful are oil futures markets in forecasting the price of oil? How useful are survey forecasts? How does one evaluate the sensitivity of a ...
Working Paper
Institutions, the cost of capital, and long-run economic growth: evidence from the 19th century capital market
Late 19th century investors demanded compensation to invest in countries with poor institutional protection of property rights. Using the monthly stock returns of 1,808 firms located in 43 countries but traded in London between 1866 and 1907, we estimate the country-specific cost of capital. We find a negative relationship between institutions that protect property rights and capital costs. Firms located in countries with weak institutions were charged a premium compared to similarly risky firms located in countries with strong institutions, and this penalty appeared to be costly in terms of ...