Abstract:
In pursuing the objective of low and stable inflation, within the framework of a monetary policy based on a system of monetary aggregate targets, the Bank of Mozambique uses indirect monetary policy instruments in order to influence the money supply which is its intermediate objective. The financial programming model used in Mozambique follows the model proposed by the International Monetary Fund and which is supported by the Quantitative Theory of Currency (TQM). In this context, the present work seeks to test the validity of this theory for the case of Mozambique in the period 2000-2012. Based on the TQM, inflation is explained by the excess of money supply in the economy. However, evidence from existing data indicates that inflation and gross domestic product (GDP) do not describe a clear trend that shows the verification of TQM for the case of Mozambique. In order to achieve these study objectives, the present research tests this theory using Granger's causality test and Johansen's cointegration test. In this context, this research aims to determine whether or not there is a causal relationship between money supply, on the one hand, and prices and gross domestic product, on the other, as well as investigating whether inflation is a monetary phenomenon or not. Mozambique. The results found indicate that there is a unidirectional causal relationship in the sense of money supply for GDP. They also indicate that there is a unidirectional relationship in the sense of money supply for prices. These results are in turn consistent with economic theory. The results of the Johansen cointegration test indicate that in Mozambique, inflation is explained by monetary factors. However, a balanced relationship between prices and GDP was not found. The implications of the results summarized above are that the Bank of Mozambique will continue to manage the monetary policy instruments at its disposal with a view to regulating the amount of money in the economy and thereby influencing inflation
