The Vagaries of the Sea: Evidence on the Real Effects of Money from Maritime Disasters in the Spanish Empire
79 Pages Posted: 15 Nov 2019 Last revised: 9 Nov 2021
Date Written: October 2019
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 a change in money supply has on the real economy. A negative shock to Spain's money supply caused a contraction in Spanish real output that was primarily transmitted through nominal rigidities and credit frictions. The output decline was especially large and persistent in textile manufacturing. This production decline took place against the backdrop of a credit crunch that impaired merchants' ability to supply their manufacturers with input goods.
Keywords: DSGE, financial accelerator, Local projection, minimum-distance estimation, Monetary shocks, Natural Experiment, Nominal Rigidity
JEL Classification: E43, E44, E52, N10, N13
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