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Discussion Paper Details

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Title: The vagaries of the sea: evidence on the real effects of money from maritime disasters in the Spanish Empire

Author(s): Adam Brzezinski, Yao Chen, Nuno Pedro G. Palma and Felix Ward

Publication Date: October 2019

Keyword(s): DSGE, financial accelerator, Local projection, minimum-distance estimation, Monetary shocks, Natural Experiment and Nominal Rigidity

Programme Area(s): Economic History, Macroeconomics and Growth and Monetary Economics and Fluctuations

Abstract: We exploit a recurring natural experiment to identify the effects of money supply shocks: maritime disasters in the Spanish Empire (1531-1810) that resulted in the loss of substantial amounts of monetary silver. A one percentage point reduction in the money growth rate caused a 1.3% drop in real output that persisted for several years. The empirical evidence highlights nominal rigidities and credit frictions as the primary monetary transmission channels. Our model of the Spanish economy confirms that each of these two channels explain about half of the initial output response, with the credit channel accounting for much of its persistence.

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Bibliographic Reference

Brzezinski, A, Chen, Y, Palma, N and Ward, F. 2019. 'The vagaries of the sea: evidence on the real effects of money from maritime disasters in the Spanish Empire'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14089