Yao CHEN | 陈瑶
Associate Professor, Erasmus School of Economics
CEPR Research Affiliate
Tinbergen Institute Research Fellow
Research interests: international macroeconomics, monetary and fiscal policy, and economic history
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Publications
Publications
Goldilocks: American precious metals and the Rise of the West
(with Nuno Palma and Felix Ward)
Review of Income and Wealth, 2026
We estimate the contribution of the American precious metal windfall to West Europe’s growth performance in the early modern period. The exogenous nature of American precious metal extraction allows for the identification of monetary effects. We find that American precious metals fostered West Europe’s growth by stimulating trade and capital accumulation. Our findings place West Europe’s second-stage receivers in a particularly fortunate goldilocks zone that enjoyed monetary stimulus, while being insulated against the transport-loss induced financial crises that caused persistent damage to first-stage receiver Spain.
Output divergence in fixed exchange rate regimes
(with Felix Ward)
Journal of International Economics, 2025
This paper presents empirical evidence for the violation of nominal exchange regime neutrality. We find that fixing the exchange rate is associated with real output losses among countries with a high pre-peg inflation rate. In particular, ten years after fixing the exchange rate a country with a +1 percentage point (ppt) pre-peg wage inflation differential has a 2% lower real GDP per capita level and a 1% lower TFP level. The tradable sector is more affected than the non-tradable sector, which accords with the former’s greater exposure to international arbitrage.
(with Adam Brzezinski, Nuno Palma, and Felix Ward)
Media coverage: The Economist
The Review of Economics and Statistics, 2024
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.
Reconstruction of the Spanish money supply, 1492–1810
(with Nuno Palma and Felix Ward)
Explorations in Economic History, 2021
How did the Spanish money supply evolve in the aftermath of the discovery of large amounts of precious metals in Spanish America? We synthesize the available data on the mining of precious metals and their international flow to estimate the money supply for Spain from 1492 to 1810. Our estimate suggests that the Spanish money supply increased more than ten-fold. Viewed through the equation of exchange this money supply increase can account for most of the price level rise in early modern Spain.
When do fixed exchange rates work? Evidence from the Gold Standard
(with Felix Ward)
Journal of International Economics, 2019
Current account reversals under the Gold Standard (1880-1913) -- a fixed exchange rate regime -- were accompanied by few, if any, output losses. To understand why, we build and estimate an open economy model of the Gold Standard, which allows us to quantitatively assess the importance of three channels of external adjustment: flexible prices, international migration, and monetary policy. Our first finding is that flexible prices were the most influential channel through which output was stabilized, whereas migration and monetary policy mattered little. Our second finding is that price flexibility was predicated on large primary sectors. Their flexibly priced products dominated the export booms that stabilized output during major external adjustments.
Current research
Current research
Austerity and productivity: evidence from euro area regions
(with Ricardo Duque Gabriel, Mathias Klein, and Ana Sofia Pessoa)
We find that fiscal consolidations raise productivity significantly and persistently. In our data, a consolidation that lowers regional public spending by 1% on impact raises TFP by about 1% on impact and about 2% after two years, even as economic activity contracts. We document this using two innovations. First, we build a novel regional utilization-adjusted TFP series for Europe, covering 139 NUTS 2 regions in ten euro area countries over 1999–2019, which corrects the Solow residual for cyclical variation in capital utilization and labor effort. Second, we isolate plausibly exogenous spending cuts with a Bartik-style instrument that interacts pre-accession regional spending shares with narratively identified national consolidation episodes. Productivity gains are larger than those observed in comparable downturns without consolidation and arise almost entirely within sectors and coincide with net exit of establishments, rather than reflecting reallocation across sectors.
Governments press central banks for lower interest rates on the premise that easy money wins elections. We test this premise for 385 elections in 18 countries, 1900–2020, using exogenous interest rate changes. We find no evidence that monetary easing helps incumbents. At the point estimate, a typical easing leaves the incumbent’s vote share unchanged; the one-sided 95 percent confidence bound on the gain is 0.90 percentage points. Of 104 incumbent defeats, such an easing would have reversed none at the point estimate and 15 at the bound, all in close races. Easy money offers incumbents no reliable electoral return.
Aging and regional fiscal multipliers in the euro area (Draft coming soon)
(with Florian van Genderen and Felix Ward)
We document that fiscal multipliers in the euro area are largely resilient to population aging, in contrast to evidence from the U.S. The reason is that aging only erodes fiscal multipliers where fiscal shocks pass through strongly to the incomes of younger, credit-constrained households – a transmission that generous unemployment insurance systems in the euro area largely mute. Consistent with this mechanism, euro area regions with low unemployment benefits do exhibit an aging-related erosion of fiscal multipliers, reminiscent of the U.S. A New Keynesian model extended to incorporate age-heterogeneity quantitatively captures the empirical relationship between aging and fiscal multipliers across both unemployment insurance regimes.
Money and prices in England and Spain, 1470-1844
(with Nicholas Mayhew, Nuno Palma, Ryland Thomas, and Felix Ward)
In: Bullion trade in the medieval and early modern period. ed.: Roman Zaroal. Palgrave Studies in the History of Finance series. London: Palgrave Macmillan forthcoming
Global risk-taking, exchange rates, and monetary policy
(with Felix Ward)
Sovereign default risk and the role of international transfers
In this paper, I investigate the role of interregional risk sharing arrangements in a monetary union when countries are afflicted with sovereign default risk. I introduce a sovereign default model in which regional sovereign default risk affects private sector financing costs and the linkage between public and private sector financing costs can exacerbate economic downturns. By providing insurance against such recessions, interregional risk sharing arrangements can raise average output levels, and thereby generate sizeable welfare benefits. Importantly, I show that most of the welfare benefits that are obtainable from the optimal risk sharing arrangement can be reaped by a standby facility that is easy to implement.
Email: y.chen@ese.eur.nl
Visiting address:
E-Building E1-30
Burgemeester Oudlaan 50
3062 PA Rotterdam
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