Working Paper: CEPR ID: DP14089
Authors: Adam Brzezinski; Yao Chen; Nuno Palma; Felix Ward
Abstract: Maritime disasters in the Spanish Empire (1531-1810) resulted in the loss of substantial amounts of silver money. We exploit this recurring natural experiment to estimate the effect that an exogenous change in the money supply has on the real economy. We find that negative money supply shocks caused Spanish real output to decline. A transmission channel analysis highlights slow price adjustments and credit frictions as channels through which money supply changes affected the real economy. Especially large output declines occurred in textile manufacturing against the backdrop of a credit crunch that impaired merchants' ability to supply their manufacturers with inputs
Keywords: monetary shocks; natural experiment; nominal rigidity; financial accelerator; DSGE; minimum-distance estimation; local projection
JEL Codes: E43; E44; E52; N10; N13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Maritime disasters (H84) | Negative money supply shocks (E51) |
| Negative money supply shocks (E51) | Decline in Spanish real output (N16) |
| Decline in Spanish real output (N16) | Decline in textile manufacturing output (L67) |
| Negative money supply shocks (E51) | Credit frictions (E51) |
| Negative money supply shocks (E51) | Slow price adjustments (E31) |
| Slow price adjustments (E31) | Decline in real output (E23) |