Costs of Financing U.S. Federal Debt Under a Gold Standard: 1791-1933.

This article focuses on reconstructing and analyzing the term structures of yields on U.S. federal bonds during the gold standard era (1791–1933) to reassess how the United States expanded its fiscal capacity. Using a newly assembled historical data set and a dynamic Nelson-Siegel yield curve model with stochastic volatility and bond-specific pricing errors, the study finds that U.S. federal debt carried a default risk premium until the late nineteenth century, after which it began to be priced as a global safe asset comparable to U.K. debt. During the Civil War, despite the introduction of nonconvertible greenback dollars, investors anticipated a return to gold parity, enabling the government to borrow without denomination risk. The establishment of the National Banking System in the 1860s coincided with the disappearance of liquidity premia on short-term debt, reflecting regulatory impacts on borrowing costs. Overall, the findings illustrate how monetary, fiscal, and financial reforms transformed U.S. federal debt from a risky obligation into a cornerstone of global finance by the early twentieth century.