Discussion Paper Details

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Title: Spending a Windfall

Author(s): Nuno Pedro G. Palma and André Silva

Publication Date: September 2021

Keyword(s): early modern trade, Euro-Asian trade, international trade, monetary injections and real effects of money

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

Abstract: We study the effect of the discovery of precious metals in America on international trade from 1500 to 1810. Around 1500, there was a simultaneous discovery of precious metals and new trading routes. We construct a counterfactual scenario of new routes but no precious metals. The discovery of precious metals was a windfall to Europe. It increased the stock of precious metals in the world more than tenfold. Compared with the case of no trade routes and no precious metals, Euro-Asian trade increases up to 20 times. We find that American precious metals were at least as important as the new trading routes as a cause of observed trade patterns.

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Bibliographic Reference

Palma, N and Silva, A. 2021. 'Spending a Windfall'. London, Centre for Economic Policy Research.