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Fiscal Dominance, Monetary Policy and Exchange Rates: Lessons from Early-Modern Venice

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  • Donato Masciandaro
  • Davide Romelli
  • Stefano Ugolini

Abstract

The impact of fiscal dominance on exchange rates has been relatively overlooked by the literature. We focus on an early unique experiment of freely floating State-issued money, implemented in Venice from 1619 to 1666. Building on a new hand-collected database from a previously unused archival source, we show that despite the Venetian government’s reputation for fiscal prudence, the external value of the ducat was highly sensitive, and increasingly so, to episodes of automatic government deficit monetization through the Banco del Giro during the shocks of 1630 (outbreak of the bubonic plague) and 1648-50 (escalation of the Cretan War).

Suggested Citation

  • Donato Masciandaro & Davide Romelli & Stefano Ugolini, 2023. "Fiscal Dominance, Monetary Policy and Exchange Rates: Lessons from Early-Modern Venice," BAFFI CAREFIN Working Papers 23205, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    • Handle: RePEc:baf:cbafwp:cbafwp23205
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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • N33 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - Europe: Pre-1913
    • N43 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: Pre-1913

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