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Credibility is not enough: Fiscal monetization and currency depreciation in early-modern Venice

Author

Listed:
  • Donato Masciandaro
  • Davide Romelli
  • Stefano Ugolini

    (LEREPS - Laboratoire d'Etude et de Recherche sur l'Economie, les Politiques et les Systèmes Sociaux - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - UT2J - Université Toulouse - Jean Jaurès - UT - Université de Toulouse - Institut d'Études Politiques [IEP] - Toulouse - ENSFEA - École Nationale Supérieure de Formation de l'Enseignement Agricole de Toulouse-Auzeville)

Abstract

This paper focuses on an early unique experiment of managed float of State-issued money, implemented in Venice between 1619 and 1666. Building on a new hand-collected database from a previously unused archival source, we show that, despite the Venetian Banco ducat's status as an international currency and the government's fiscal credibility, the exchange rate was directly and significantly affected by episodes of automatic government deficit monetization during the crises of 1629-31 and 1648-50. This suggests that a contingent commitment regime in which government-managed fiat money mimics a convertible currency can be effective, but is very sensitive to the time-consistency of the monetary-fiscal policy mix.

Suggested Citation

  • Donato Masciandaro & Davide Romelli & Stefano Ugolini, 2025. "Credibility is not enough: Fiscal monetization and currency depreciation in early-modern Venice," Post-Print hal-05246606, HAL.
    • Handle: RePEc:hal:journl:hal-05246606
    DOI: 10.1016/j.eeh.2025.101716
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