Working Paper: NBER ID: w30060
Abstract: Privately issued money often bears devaluation risk that create monetary transaction frictions. We evaluate the real effects of supplying a new type of safe money in the historical context of the US in 1863. We instrument for the change in monetary frictions locally using regulatory capital requirements and measure the degree safe money access with a market access approach derived from general equilibrium trade theory. Lowering monetary transaction costs increased traded goods production and spurred structural transformation with more manufacturing output, employment, and urban population. The growth in manufacturing was driven by employment and inputs rather than capital investment.
Keywords: No keywords provided
JEL Codes: E42; E44; E51; F14; G21; N11; N21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lowering monetary transaction costs through the introduction of safe money (E42) | increased traded goods production (F19) |
| increased traded goods production (F19) | structural transformation characterized by more manufacturing output, employment, and urban population growth (O14) |
| introduction of national bank notes (safe money) (E42) | reduced transaction frictions (F12) |
| reduced transaction frictions (F12) | increased market access (F69) |
| increased market access (F69) | increased production in the traded sector (F19) |
| increased production in the traded sector (F19) | increased share of manufacturing employment (O14) |
| increased production in the traded sector (F19) | increased urban population (R23) |