Tests of the Direction of Causation Between Money and Income in Six Countries

DyReyes, Felix R.,, Dennis R. Starleaf and George H. Wang

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: One of the oldest and most durable propositions in economics is that an increase or decrease) in a country's nominal money stock will cause an expansion (a contraction) in its aggregate nominal Income. Although this proposi tion is often associated with the quantity theory of money and with monetarism, it also emerges from most Keynesian macro models. Indeed, while economists may disagree with one another on how stable or consistent is the response of nominal aggregate income to changes in the money stock, it appears that few, if any, would argue that nominal national income is not affected by changes in the money stock (at least in free-market economies).

Date: 1980-10-01
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