Does the Past Count? Sovereign Debt during the Classical Gold Standard through the Lenses of Mover Stayer and Markov Chain Models

digital

Article

Magazine

RIVISTA INTERNAZIONALE DI SCIENZE SOCIALI

Fascicle

RIVISTA INTERNAZIONALE DI SCIENZE SOCIALI - 2019 - 4

Title

Does the Past Count? Sovereign Debt during the Classical Gold Standard through the Lenses of Mover Stayer and Markov Chain Models

Authors

Daniela Bragoli, Camilla Ferretti, PIERO GANUGI, Luigi Grossi, Giancarlo Ianulardo

Publisher

Vita e Pensiero

Format

Article |

Pdf

Online from

05-2020

Doi

10.26350/000518_000038

Issn

0035-676X (print) | 1827-7918 (digital)

€ 6.00

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Description

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.

keywords

Sovereign Default, Classical Gold Standard, Markov Chain, Mover Stayer

Authors biography

Daniela Bragoli, Dipartimento di Matematica per le Scienze economiche, finanziarie ed attuariali, UniversitèàCattolica del Sacro Cuore, Milano. Email: daniela.bragoli@unicatt.it.
Camilla Ferretti, Dipartimento di Scienze Economiche e Sociali, Università Cattolica del Sacro Cuore, Piacenza. Email: camilla.ferretti@unicatt.it.
Piero Ganugi, Dipartimento di Ingegneria e Architettura, Università degli Studi di Parma, Parma. Email: piero.ganugi@unipr.it.
Luigi Grossi, Dipartimento di Scienze Economiche, Università di Verona, Verona. Email: luigi.grossi@univr.it.
Giancarlo Ianulardo, Department of Economics, University of Exeter. Email: g.ianulardo@exeter.ac.uk