Rules and Credibility: an historical example

In a new NBER working paper (ungated version here), Ferguson & Schularick argue that adopting the gold standard did not impart increased credibility to periphery country governments though it did for rich country governments. Here is their abstract:

This paper asks whether developing countries can reap credibility gains from submitting policy to a strict monetary rule. Following earlier work, we look at the gold standard era (1880-1914) as a "natural
experiment" to test whether adoption of a rule-based monetary framework such as the gold standard increased policy credibility. On the basis of the largest possible dataset covering almost sixty independent
and colonial borrowers in the London market, we challenge the traditional view that gold standard adherence worked as a credible commitment mechanism that was rewarded by financial markets with lower borrowing costs. We demonstrate that in the poor periphery -- where policy credibility is a particularly acute problem -- the market looked behind "the thin film of gold". Our results point to a dichotomy: whereas country risk premia fell after gold adoption in developed countries, there were no credibility gains in the volatile economic and political environments of developing countries. History shows that monetary policy rules are no short-cut to credibility in situations where vulnerability to economic and
political shocks, not time-inconsistency, are overarching concerns for investors.

I really like that last sentence!