Essays in political economy
Keywords: wage rigidity
inflation
local projection
monetary capacity
credit channel
monetization
monetary non-neutrality
quantity theory of money
price rigidity
narratives
monetary shocks
populism
fiscal capacity
taxation
subjective beliefs

Narratives of Blame
This paper formulates a new theory of political competition in narratives applicable to the study of populism. Parties act as narrators, offering voters explanations for observable outcomes that differ in the degree of blame attributed to external scapegoats. Populist narratives of blame appeal to voters who face unfavourable outcomes. The model sheds light on the factors that lead to left-wing versus right-wing populism. In particular, economic cleavages in society favour left-wing populism, whereas sociocultural cleavages favour right-wing populism. The relative rise of right-wing populism and an emerging sociocultural split in the electorate can jointly be interpreted as driven by an increasing salience of sociocultural issues. The theory also examines the role of “left-behind” voters in the success of populists, and explores the incentives for right-wing populists to adopt more redistributive economic policies in order to satisfy such voters.

Science Skepticism Reduced Compliance with COVID-19 Shelter-in-Place Policies in the United States
Physical distancing reduces transmission risks and slows the spread of COVID-19. Yet compliance with shelter-in-place policies issued by local and regional governments in the United States was uneven and may have been influenced by science skepticism and attitudes towards topics of scientific consensus. Using county-day measures of physical distancing derived from cellphone location data, we demonstrate that the proportion of people who stayed at home after shelter-in-place policies went into effect in March and April 2020 in the United States was significantly lower in counties with a high concentration of science skeptics. These results are robust to controlling for other potential drivers of differential physical distancing, such as political partisanship, income, education and COVID severity. Our findings suggest public health interventions that take local attitudes toward science into account in their messaging may be more effective.

Monetary Capacity
Monetary capacity refers to the maximum level of monetization attainable by a state, which depends on demand- and supply-side factors. We argue that monetary and fiscal capacity, and by extension, markets and states have a symbiotic relationship. Long-run European evidence corroborates this mutual dependence, with money and taxes moving in close synch. History also offers a natural experiment to estimate the causal effect of monetary capacity on fiscal capacity. The discovery and extraction of precious metals in the Americas increased money stocks and in turn tax revenues in early modern Europe, a finding that is robust to controlling for economic growth.

The Vagaries of the Sea: evidence on the real effects of money from maritime disasters in the Spanish Empire
We estimate the effect of money supply changes on the real economy by exploiting a recurring natural experiment: maritime disasters in the Spanish Empire (1531-1810) which resulted in the loss of substantial amounts of silver money. 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 mechanisms 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.