Inflation in Portugal, 1953‐1980: An Econometric Analysis

Abstract

SUMMARY This paper is a study of inflation in Portugal during the years 1953‐1980, a period marked by political revolution and the start of the country's modern economic development. The analysis is conducted within the context of the monetarist‐structuralist debate and employs, as explanatory variables, changes in expected prices, money, permanent income, exchange rates, and a vector of structural factors. Ordinary least squares and first‐ and second‐order autoregressive models, estimated by means of BEACH and MCKINNON'S full maximum likelihood technique, are the empirical methods used to investigate the sources of this inflation. In addition to the usual hypotheses, the question of economies of scale in money‐holding and the general equilibrium notion of a direct and proportional relationship between changes in money and prices are tested. The empirical results demonstrate that, despite political upheaval and government intervention in the market, neoclassical theory provides a reliable explanation of inflation in Portugal during the period considered.

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