Monetary aggregates and macroeconomic performance : the Portuguese Escudo, 1911-1999

Abstract

This paper takes a long time span approach to provide a full characterization of several monetary aggregates over Portuguese’s historical economic business cycles. By focusing on the 1911-1999 period (the life span of the currency Escudo), the paper also revisits the issue of the role of money on real macroeconomic outcomes. We get inspiration from the monetarists versus Keynesians debate about direction of causality in the output-money relation and the quest for validity of money (non-)neutrality. By means of descriptive statistics we first uncover that money changes were associated with changes in real economic activity. Most monetary aggregates are more volatile than GDP, display high serial autocorrelation, are generally countercyclical and lead the economic cycle (except checking accounts). Then, through formal time series techniques, our results show that our monetary series were characterized by unit roots and were cointegrated with real GDP (after accounting for endogenously estimated breaks). Evidence suggested that money supply Granger-caused real GDP supporting the money non-neutrality hypothesis in the case of Portugal.info:eu-repo/semantics/publishedVersio