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Interaction of Monetary and Fiscal Policy from a Historical Perspective: Precious Metals and Venetian Government Debt

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  • Miloš Božović

Abstract

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. Keywords: Venetian prestiti, Sovereign debt, Gold and silver, Late medieval mines, Ottoman-Venetian conflict. JEL: E44, E51, F34, N23.

Suggested Citation

  • Miloš Božović, 2022. "Interaction of Monetary and Fiscal Policy from a Historical Perspective: Precious Metals and Venetian Government Debt," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 69(2), pages 315-332.
    • Handle: RePEc:voj:journl:v:69:y:2022:i:2:p:315-332:id:1675
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    More about this item

    Keywords

    Venetian prestiti; Sovereign debt; Gold and silver; Late medieval mines; Ottoman-Venetian conflict;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913

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