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Does Growth Cause Inflation? Granger-Causality and Cointegration Tests: The Case of Portugal

Author

Listed:
  • Tran, Dang T.

    (California State University, Department of Economics and Statistics, College of Business and Economics)

  • Sawhney, Bansi

    (Merrick School of Business, University of Baltimore)

Abstract

Cointegration tests based on Portugal’s annual data from 1833 to 1985 indicate that output and the price level move in a long-run equilibrium relationship. The short-run bidirectional causative chains between these two variables resulting from the error-correction model appear to confirm what all modem theories posit. However, the vector autoregression analysis shows decisively that growth Granger-causes inflation and inflation does not Granger-cause growth. The overall findings seem to favor one of the major tenets of the traditional Keynesian theory but are unfavorable to one group of the neoclassical models, the rational expectations hypothesis, and the natural rate hypothesis.

Suggested Citation

  • Tran, Dang T. & Sawhney, Bansi, 2000. "Does Growth Cause Inflation? Granger-Causality and Cointegration Tests: The Case of Portugal," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 53(3), pages 409-424.
    • Handle: RePEc:ris:ecoint:0244
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    JEL classification:

    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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