Monetary regimes and statistical regularity: the Classical Gold Standard (1880-1913) through the lenses of Markov models

We aim at characterizing the Classical Gold Standard period (CGS) in order\r\nto verify if it is endowed with statistical regularity. We study the statistical properties of\r\ntwo-state annual transition matrices of countries switching from a sound state to a crisis\r\nstate focusing on Reinhart and Rogoff 2009 dataset on external debt crises. The CGS\r\nperiod is governed by homogeneity both in time and across statistical units: the Homogeneous\r\nMarkov Chain Model holds whereas the Mover Stayer Model does not. Our work is\r\nlinked to the literature on the CGS and credibility (Bordo and Rockoff 1996). We follow a\r\npure statistical approach to highlight two decisive channels of the credibility mechanism.\r\nThe first is the stabilization of the probability of default of sound countries. The second\r\nis the fact that the CGS makes periphery/deficit countries homogeneous to the core with\r\nrespect to the probability of default. Both channels are decisive because poor developing\r\ncountries can borrow at favorable conditions and finance a level of investment greater than\r\ntheir capacity of saving.