More Evidence on the Money-Output Relationship

Rik Hafer () and Ali Kutan

Economic Inquiry, 1997, vol. 35, issue 1, 48-58

Abstract: Recent studies have found that money loses its explanatory power over output if the 1980s are included in the sample. Interest rates, not money, appear to predict output. Using annual data for 1915-93 and quarterly data for 1960-93, the authors demonstrate that the supposed breakdown in the money-output relationship stems from the type of stationary assumption imposed on the data. Assuming difference-stationary produces results found in the literature. Assuming trend-stationary produces results indicating that money and output remain statistically related. Moreover, the change in the stationarity assumption greatly affects the quantitative importance of interest rates in explaining output. Copyright 1997 by Oxford University Press.

Date: 1997
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