The Money-Currency Puzzle: Monetary Policy and Silver Trade Dominance in Early Modern Europe (1575-1680)

Research Topic: This research examines monetary policy in early modern Europe and its role in the Reversal of Trade dominance. It underpins the non-commodity nature of physical coinage to argue that authorities undertook monetary policy. With a special focus on Spain, the issuer of the 17th-century dominant currency, the dissertation identifies the main determinants of monetary changes and their effects on silver flows.

Aims and Objectives: This research aims to explain the intra-European flows of American-imported silver and why this pattern changed from the last quarter of the 16th century. Additionally, the dissertation intends to improve our understanding of the early modern European monetary system and regimes and redefine monetary policy from fiscal to commercial. In this sense, it questions the political economy of devaluations and their international dimensions. Likewise, the dissertation proposes a new model to illustrate the imbalances of silver flows in early modern Europe, disconnected from the trade balance, incorporating longrun monetary non-neutrality.

Relevant Technical Terms: Non-commodity nature of money: physical currencies have a non-commodity premium over bullion. Long-run monetary non-neutrality: the concept that changes in monetary policy do not always transmit to exchange rates. Currency Approach for Balance of Payments (CABP): a novel alternative theory explaining the role of currencies in international trade and capital flows.

Methodology: This research employs a mixed-methods approach, combining qualitative and quantitative analysis:
Quantitative Analysis: Construction of two novel datasets on monetary policy and exchange rates (1575-1680) to analyse monetary transmission mechanisms.
Qualitative Analysis: Examining historical monetary policy decisions and discussions of policymakers and economic thinkers.
Econometric Testing: Assessment to empirically show the causation from exchange rates to monetary policy and not viceversa.
Comparative Case Studies: Analysis of countries that responded to external monetary shocks (Dutch Republic, France) versus those driven by domestic money markets (Genoa, Venice, Milan), explaining the Reversal of Trade.