How the Gold Standard functioned in Portugal: an analysis of some macroeconomic aspects

Portugal was the first country in Europe to join Great Britain in the Gold Standard, in 1854, having abandoned the principle of free gold convertibility in 1891. By elucidating the historical choice of the Gold Standard by the Portuguese authorities, and analysing its macroeconomic behaviour, we prove that it is a mistake to compare different monetary systems with the same indicators. Our examination of demand, supply and monetary shocks in the context of a Vector Autoregression (VAR) model confirm the idea of appropriate application of the principles of classical economics to the Gold Standard in Portugal. We also prove that the principles of demand management were not compatible with the functioning of the Gold Standard.