Skip to main content
SpringerLink
Log in

Determinants of the income velocity of money in Portugal: 1891–1998

  • Original Article
  • Published:
Portuguese Economic Journal Aims and scope Submit manuscript

Abstract

This paper performs a long-run time series analysis of the behaviour of the income velocity of money in Portugal between 1891 and 1998 by assessing the importance of both macroeconomic and institutional factors and looking for particularities in the Portuguese case. We estimate two cointegration vectors for the income velocity of money, macroeconomic variables and institutional variables. It is apparent that one of these vectors reflects the relationship between income velocity and macroeconomic variables, while the other reflects the relationship between income velocity and institutional variables. Moreover, a regression analysis reveals that the usual U-shaped pattern is displayed with a relatively late inflection point located around 1970, which is consistent with the Spanish case. It is further noted that this is a feature of countries with a late economic and institutional development process.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

Notes

  1. A rather comprehensive summary of the classical theories on the determinants of the long-run behaviour of velocity is presented in Bordo and Jonung (2006, p. 12-21). See also the seminal research on money demand in the United Kingdom by Hendry and Ericsson (1991) and by Escribano (2004).

  2. However, we believe that the study of velocity considering narrower monetary aggregates as M0 and M1 may also be relevant, especially for pre-industrialized and early-industrialization epochs.

  3. Portugal was an early adopter and an early leaver to the gold standard. It was adopted through the Law of July 29, 1854, and suspended (never to be restored for all practical purposes) by the Decree of July 9, 1891 (Reis 1996; Santos 1996). See Reis (1996) and Mendonça (1996) for a discussion of the reasons for adopting this monetary regime, and Duarte and Andrade (2003) for an analysis of its functioning.

  4. However, this methodology has remained under debate (Lains and Reis 1991; Nunes et al. 1991; Esteves 1993; Marques and Esteves 1994). Meanwhile, retrospective estimates of the GDP at constant prices and the GDP deflator were computed from sector output values from 1850 to 1913 (Reis 1986; Lains 1990, 1995; Lains and Sousa 1998) consistent with the series produced by the Bank of Portugal research teams, namely, those computed in Batista et al. (1996) for the period 1910 to 1958. Unfortunately, these alternative time series, which were linked in Lains (2003), cannot be tied to the related series produced in Pinheiro et al. (1997) for the period 1953 to 1992, as is acknowledged by the author himself (Lains 2003, p. 248, p. 256).

  5. The methodology as well as the empirical evidence it produced was also under debate (Reis 1990; Valério 1991).

  6. From 1908 to 1913, we took the yields for the 1st of July. They are the only values available for 1912 and 1913 and one of the three available for 1908 to 1911.

  7. Note that there is one degree of freedom in what concerns the CV coefficients, as when a given vector cointegrates a set a variables, so, too, does another vector proportional to it.

  8. See Hodrick and Prescott (1997).

  9. As a robustness test, the same econometric procedure was applied to a shorter sample, from 1928 onwards, discarding more distant and less reliable data. Results were essentially the same (two cointegration vectors, one institutional and the other related to traditional money demand, with U-shaped velocity curve that exhibited an inflection point around 1970).

  10. With respect to financial sophistication, the changes introduced after the revolution of April 1974 had a very short term adverse effect on the anticipated sophistication, namely nationalization of the banking system and the closure of the stock market.

  11. “[…] a large number of close substitutes for money, such as bonds, stocks and other financial assets […]” as well as “[…] the development of various methods of economizing on money balances, such as the use of credit cards, transfer of funds either electronically or by phone, and modern cash management techniques, within business and industry” (Jonung 1978, p. 222).

References

  • Batista D, Martins C, Pinheiro M, Reis J (1996) New estimates for Portugal's GDP 1910–1958. Banco de Portugal, Lisboa

    Google Scholar 

  • Bordo MD, Jonung L (1981) The long run behavior of the income velocity of money in five advanced countries, 1870-1975: an institutional approach. Econ Inq 19:96–116

    Article  Google Scholar 

  • Bordo MD, Jonung L (2006) Demand for money. An analysis of the long-run behavior of the velocity of circulation, 2nd edn. Transaction Publishers, London

    Google Scholar 

  • Bordo MD, Jonung L, Siklos PL (1997) Institutional change and the velocity of money: a century of evidence. Econ Inq 35:710–724

    Article  Google Scholar 

  • Carreras A, Garcia-Iglesías C, Kilponen J (2006) The long run behavior of the income velocity of money in Spain. 1850-2000. J Iberian Latin Am Econ Hist 24:215–249

    Article  Google Scholar 

  • Costa A (1913) Relatório do Ministro das Finanças ao Congresso. Imprensa Nacional, Lisboa

    Google Scholar 

  • Duarte AP, Andrade JS (2003) O funcionamento do padrão-ouro em Portugal: análise de alguns aspectos macroeconómicos. Revista de História Económica e Social 6:45–88 2nd edn

    Google Scholar 

  • Escribano A (2004) Nonlinear Error Correction: The Case Of Money Demand In The United Kingdom (1878 2000). Macroecon Dyn 8(01):76–116 Cambridge University Press

    Article  Google Scholar 

  • Espregueira M (1908) Relatório do Ministro da Fazenda às Cortes. Imprensa Nacional, Lisboa

    Google Scholar 

  • Esteves P (1993) Portuguese prices before 1947: inconsistency between the observed cost of living index and the GDP price estimation of Nunes et al. 1989, Bank of Portugal, Working Papers No. 19–93

  • Esteves RP (2003) Looking ahead from the past: the intertemporal sustainability of Portuguese finances, 1854-1910. Eur Rev Econ Hist 7:239–266

    Article  Google Scholar 

  • Flandreau M, Zumer F (2004) Les origines de la mondialisation financière 1880–1913. OECD, Paris

    Book  Google Scholar 

  • Hendry DF, Ericsson NR (1991) An Econometric Analysis of U.K. Money Demand in 'Monetary Trends in the United States and the United Kingdom' by Milton Friedman and Anna Schwartz. Am Econ Rev 81(1):8–38

    Google Scholar 

  • Hodrick R, Prescott EC (1997) Postwar U.S. Business Cycles: An Empirical Investigation. J Money, Credit, Bank 29(1):1–16

    Article  Google Scholar 

  • I.N.E. (1948-1968) Estatísticas Financeiras, Instituto Nacional de Estatística, Lisboa

  • I.N.E. (1970-2000) Estatísticas Monetárias e Financeiras. Instituto Nacional de Estatística, Lisboa

  • I.N.E (2003) Estimativas definitivas da população residente intercensitárias: Portugal, NUTS II, NUTS III e Municípios. Instituto Nacional de Estatística, Lisboa

    Google Scholar 

  • Johansen S (1988) Statistical analysis of cointegration vectors. J Econ Dyn Control 12:231–254

    Article  Google Scholar 

  • Jonung L (1978) The long-run demand for money — a Wicksellian approach. Scand J Econ 80:216–230

    Article  Google Scholar 

  • Lains P (1990) A evolução da agricultura e da indústria em Portugal, 1850–1913: interpretação quantitativa. Banco de Portugal, Lisboa

    Google Scholar 

  • Lains P (1995) A economia portuguesa no século XIX. Crescimento e comércio externo, 1851–1913. Imprensa Nacional, Lisboa

    Google Scholar 

  • Lains P (2003) Os progressos do atraso. Uma nova história económica de Portugal. ICS, Lisboa

    Google Scholar 

  • Lains P, Reis J (1991) Portuguese economic growth: some doubts. J Eur Econ Hist 20:441–444

    Google Scholar 

  • Lains P, Sousa PS (1998) Estatística e produção agrícola em Portugal. Anál Soc 33:935–968

    Google Scholar 

  • Maddison A (1995) Monitoring the world economy, 1820–1992. OECD, Paris

    Google Scholar 

  • Maddison A (2001) The world economy. A millennial perspective. OECD, Paris

    Google Scholar 

  • Maddison A (2003) The world economy. Historical statistics. OECD, Paris

    Book  Google Scholar 

  • Maddison A (2007) Contours of the world economy, 1–2030 AD. Oxford University Press, Oxford

    Google Scholar 

  • Marques C, Esteves P (1994) Portuguese GDP and its deflator before 1947: a revision of the data produced by Nunes et al. 1989, Bank of Portugal, Working Papers No. 4/94

  • Mata, M.E. (1987) Câmbios e política cambial na economia portuguesa 1891-1931, Cadernos da Revista de História Económica e Social. Livraria Sá da Costa Editora, Lisboa, p 8

  • Mata ME, Valério N (2011) The concise economic history of Portugal. A comprehensive guide. Almedina, Coimbra

  • Mateus A (1998) Economia portuguesa desde 1910, 2nd edn. Verbo, Lisboa

    Google Scholar 

  • Mendonça A (1996) The introduction of the gold standard in Portugal. In: Amaral JF et al (eds) Ensaios de homenagem a Manuel Jacinto Nunes. ISEG, Lisboa, pp 73–98

    Google Scholar 

  • Nunes AB (2001) Economic activity of the population. In: Valério N (ed) Portuguese Historical Statistics. INE, Lisboa, pp 149–196

    Google Scholar 

  • Nunes AB, Mata ME, Valério N (1989) Portuguese economic growth 1833-1985. J Eur Econ Hist 18:291–230

    Google Scholar 

  • Nunes AB, Mata ME, Valério N (1991) Portuguese economic Growth: some comments on Pedro Lains’ and Jaime Reis’ doubts. J Eur Econ Hist 20:445–447

    Google Scholar 

  • Pinheiro M, Crespo T, Nascimento M et al (1997) Séries longas para a economia portuguesa. Banco de Portugal, Lisboa

  • Reis J (1986) A produção industrial portuguesa, 1870-1914: primeira estimativa de um índice. Anál Soc 22:903–928

    Google Scholar 

  • Reis J (1990) A evolução da oferta monetária Portuguesa, 1854–1912. Banco de Portugal, Lisboa

    Google Scholar 

  • Reis J (1996) First to join the gold standard, 1854. In: Macedo JB et al (eds) Currency convertibility. The gold standard and beyond. Routledge, London, pp 159–181

    Google Scholar 

  • Santos FT (1996) Last to join the gold standard, 1931. In: Macedo JB et al (eds) Currency convertibility. The gold standard and beyond. Routledge, London, pp 182–203

    Google Scholar 

  • Siklos PL (1993) Income velocity and institutional change: some new time series evidence, 1870-1986. J Money Credit Bank 25:377–392

    Article  Google Scholar 

  • Valério N (1991) Recensão a Reis (1990). Estud Econ 12:111–115

    Google Scholar 

  • Valério N (1994) As finanças públicas portuguesas entre as duas guerras mundiais. Cosmos, Lisboa

    Google Scholar 

  • Valério N (1998) Portugal e a integração europeia. Revista ANPEC 3:105–124

    Google Scholar 

  • Valério N (ed) (2001) Portuguese Historical Statistics. INE, Lisboa

    Google Scholar 

  • Valério N (ed) (2006) The History of the Portuguese Banking system, 1822–1931. Bank of Portugal/Eurosistema, Lisbon

    Google Scholar 

  • Valério N (2008) Avaliação do produto interno bruto de Portugal, GHES-ISEG, Working Papers No. 34

Download references

Acknowledgments

We are grateful to Claude Diebolt (CNRS), the participants of the FRESH (Future Research in Economic and Social History), Bureau d’Economie Theorique et Appliquée/CNRS, Strasburg, the participants of the Economic Department Seminar at ISEG/UTL. and António Afonso (UECE). The authors also thank two anonymous referees for their beneficial suggestions.

This work was supported by the Portuguese national funding agency for science, research and technology (FCT), under the Strategic Project PEst-OE/HIS/UI0431/2011 (GHES/CSG) and the Strategic Project UID/ECO/00436/2013 (UECE).

Author information

Authors and Affiliations

  1. ISEG, (Lisbon School of Economics and Management), GHES-CSG (Research Unit on Economic and Social History), Universidade de Lisboa, Lisbon, Portugal

    Ana Bela Nunes, Nuno Valério & Rita Martins de Sousa

  2. ISEG, (Lisbon School of Economics and Management), UECE/REM (Research Unit on Complexity and Economics), Universidade de Lisboa, Rua Miguel Lupi 20, P1249-078, Lisbon, Portugal

    Miguel St. Aubyn

Authors
  1. Ana Bela Nunes
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Miguel St. Aubyn
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Nuno Valério
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Rita Martins de Sousa
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Miguel St. Aubyn.

Appendix

Appendix

Fig. 3
figure 3

Real per capita GDP. (1914 prices, 1000 escudos, in logarithms)

Full size image
Fig. 4
figure 4

Inflation rate. (change in logged GDP deflator)

Full size image
Fig. 5
figure 5

Nominal interest rate. (in percentage points)

Full size image
Fig. 6
figure 6

Monetisation proxy. (share of labour force working in non-agricultural activities in percentage terms)

Full size image
Fig. 7
figure 7

Financial sophistication proxy. (M2/L)

Full size image

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Nunes, A.B., St. Aubyn, M., Valério, N. et al. Determinants of the income velocity of money in Portugal: 1891–1998. Port Econ J 17, 99–115 (2018). https://doi.org/10.1007/s10258-017-0141-1

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10258-017-0141-1

Keywords

JEL Classification

Search

Navigation