The Real Effects of Monetary Expansions: Evidence from a Large-scale Historical Experiment

Nuno Palma

The Review of Economic Studies, 2022, vol. 89, issue 3, 1593-1627

Abstract: The discovery of massive deposits of precious metals in America during the early modern period caused an exogenous monetary injection to Europe’s money supply. I use this episode to identify the causal effects of money. Using a panel of six European countries, I find that monetary expansions had a material impact on real economic activity. The magnitudes are substantial and persist for a long time: an exogenous 10% increase in the production of precious metals in America measured relative to the European stock leads to a front-loaded response of output and, to a lesser extent, inflation. There was a positive hump-shaped response of real GDP, with a cumulative increase up to 0.9% six to nine years later. The evidence suggests that this is because prices responded to monetary injections with considerable lags.

Keywords: Identification in macroeconomics; Early modern monetary injections; Liquidity effects; Wealth effects; Monetary non-neutrality; E40; E50; N13 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://hdl.handle.net/10.1093/restud/rdab042 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:89:y:2022:i:3:p:1593-1627.

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().