The vagaries of the sea: evidence on the real effects of money from maritime disasters in the Spanish Empire

Maritime disasters in the Spanish Empire (1531-1810) resulted in the loss of substantial amounts of silver money. We exploit this recurring natural experiment to estimate the effect that an exogenous change in the money supply has on the real economy. We find that negative money supply shocks caused Spanish real output to decline. A transmission channel analysis highlights slow price adjustments and credit frictions as channels through which money supply changes affected the real economy. Especially large output declines occurred in textile manufacturing against the backdrop of a credit crunch that impaired merchants’ ability to supply their manufacturers with inputs.