Q2. How are the results for debt default robust?
The results for debt default are robust to including exchange rate volatility and individually dropping area, population, or railroad miles from the fixed and random effects specifications.
Q3. How can a simple test of a difference in means be rejected?
a simple test of a difference in means finds that the null hypothesis of no change in the yield spread in the pre-supersanction and supersanction periods can easily be rejected at the one- percent level of significance.
Q4. What was the common form of sanctions used by defaulting countries?
roughly two-thirds of these sanctions took the form of gunboat diplomacy or the loss of fiscal sovereignty by the defaulting country, i.e. supersanctions.
Q5. How many years did the countries in their sample spend in default?
Prior to the implementation of supersanctions, countries in their sample spent nearly 47 percent of the gold standard period in default.
Q6. What is the main reason for the decline in trade?
The decline in trade may also be explained by a rise in smuggling as merchants tried to avoid paying customs duties with the establishment of a more efficient tax collection service.
Q7. How do the authors test whether bilateral trade flows are associated with debt default?
Using an augmented gravity model of trade and a new database of nearly 9,000 bilateral trade pairs for the gold standard era, the authors test whether bilateral trade flows are associated with debt default.
Q8. What does the author find to be the effective mechanism for preventing future defaults?
Nor do the authors find that sanctions applied by private creditors were an effective mechanism for preventing future defaults or cleansing the reputation of defaulters.
Q9. What are the types of sanctions that were used to encourage debt repayment?
These include private creditor sanctions and what the authors call “supersanctions” – instances where external military pressure or political and financial control was imposed on defaulting nations.
Q10. How did the ex ante default probability decrease after a country was supersanctione?
According to data on new debt issues, the ex ante default probability on a principal default decreased by more than 60 percent after a country had been supersanctioned.
Q11. What is the main argument for restoring Argentina’s reputation after its recent default?
Consistent with what Caballero and Dornbusch (2002) have argued for restoring Argentina’s reputation after its recent default, their results suggest that third-party enforcement mechanisms, with the authority to enact financial and fiscal reforms, may be beneficial for resuscitating the capital market reputation of sovereign defaulters.
Q12. What is the reason why the results differ from the recent period of sovereign debt default?
As the previous section of the paper suggests, one possible explanation for why their results differ from the recent period of sovereign debt default is that creditors punished defaulters using other types of sanctions.
Q13. How many countries have experienced a decline in their ex ante default probability?
The decline in the ex ante default probability is greatest for Egypt, Greece, and Turkey, countries that individually issued more than 15 million pounds of new debt and were each supersanctioned for more than 15 years.
Q14. What did the CFB do to prevent defaulters from borrowing?
The CFB also established creditor committees of British bondholders to facilitate debt settlements between lenders and defaulters and even worked with creditor associations in Paris and Berlin to prevent debt defaulters from borrowing in international capital markets, although collective action problems often prevented these groups from working together effectively.
Q15. How many episodes of default were met with more drastic responses by creditor countries?
As described in Section III, there were approximately 12 episodes of default during theclassical gold standard era, which were met with more drastic responses by creditor countries.