Interaction of monetary and fiscal policy from a historical perspective: Precious metals and Venetian government debt
Was monetary policy crucial for early sovereign debt sustainability? This paper analyses whether the availability of gold and silver drove Venetian government debt servicing costs in the late medieval period. We use an error correction model to describe changes in yields on perpetual bonds...
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| Format: | Article |
| Language: | English |
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Economists' Association of Vojvodina
2022-01-01
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| Series: | Panoeconomicus |
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| Online Access: | http://www.doiserbia.nb.rs/img/doi/1452-595X/2022/1452-595X2202333B.pdf |
| Summary: | Was monetary policy crucial for early sovereign debt sustainability? This
paper analyses whether the availability of gold and silver drove Venetian
government debt servicing costs in the late medieval period. We use an error
correction model to describe changes in yields on perpetual bonds issued by
the Venetian state. We document that the ability of the Venetian Republic to
service its sovereign borrowing can be partially attributed to the supply of
precious metals. We show that the substantial increase in debt servicing
costs during the 15th century can be associated with an abrupt halt in the
supply of gold and silver from mines in Serbia and Bosnia - primarily a
consequence of the Ottoman expansion to the west. We control for other
explanatory factors, such as mean reversion of nominal yield, real GDP
growth and military conflicts. |
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| ISSN: | 1452-595X 2217-2386 |