Harbingers of modernity: monetary injections and European economic growth, 1492-1790

by Nuno Pedro Palma

Institution: The London School of Economics and Political Science (LSE)
Year: 2015
Keywords: HC Economic History and Conditions
Posted: 02/05/2017
Record ID: 2065600
Full text PDF: http://etheses.lse.ac.uk/3283/


In this dissertation I assess some of the effects for the early modern European economy which resulted from the large-scale discovery and exploitation of precious metals in the New World. I argue that the monetary injections which were a direct result of the increased precious metals availability were an important cause of stimulus for several early modern European economies. The thesis mainly consists of three papers. In the first paper I argue variation in production of precious metals in America can be helpful to identifying the causal effects of money in a macroeconomic setting. Using a panel of six European countries for the period 1531-1790, I find strong reduced-form evidence in favor of non-neutrality of money for changes in real economic activity. The magnitudes are substantial and persist for a long time: an exogenous 10% increase in production of precious metals in America leads to a hump-shaped positive response of real GDP, peaking at an average increase of 1.3% four years later. The evidence suggests this is because prices responded to monetary injections only with considerable lags. The following two chapters are focused on different aspects of the measurement and analysis of the causal effects of the monetary injections for the English economy. In the second paper, I put forward new data on annual coin supply for England over the long run. This is offered not only as a data construction exercise within the specific context of England, but also as a methodological contribution which in principle can be reproduced for some other countries. Finally, in the third paper, I present a historical discussion of the long-term effects of the early modern monetary injections in the context of the English economy. I show the increased availability of precious metals led to liquidity injections which matter for our understanding of the English industrious, industrial, and financial revolutions during early modern period.