Working Paper: NBER ID: w16190
Authors: Peter L. Rousseau; Caleb Stroup
Abstract: We examine econometrically the real effects of paper money's introduction into colonial New England over the 1703-1749 period. Departing from earlier analyses that focus primarily on the depreciation of paper money in the region, we show that expansion of the money stock promoted growth in modern sector activity and not the other way around. We also find that bills emitted for seigniorage purposes had a positive effect on the modern sector, while bills issued through loan banks did not.
Keywords: Monetization; Colonial Economy; Paper Money; Economic Growth
JEL Codes: E42; N11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| money supply (m) (E51) | real economic activity (y) (E20) |
| direct emissions of paper money by colonial legislatures (E42) | growth of the modern sector (O14) |
| money supply (m) (E51) | entrepreneurial credit availability (M13) |
| money supply increases (E51) | permanent growth in economic activity (y) (O40) |
| direct emissions of paper money by colonial legislatures (E42) | reduced transaction frictions (F12) |
| bills issued for seigniorage (E42) | positive impact on the modern sector (F69) |
| bills issued through loan banks (G21) | no measurable effects on economic activity (y) (F69) |