Breaking Trends And The Money-Output Correlation

David G. Fernandez

The Review of Economics and Statistics, 1997, vol. 79, issue 4, 674-679

Abstract: This paper examines the impact on the money-output correlation of a univariate specification that allows time series to be characterized as stationary around a broken trend function. Though pretesting suggests that U.S. real output (industrial production) can be described as broken-trend stationary, this result has only limited impact on the money-output correlation. Before 1985 there is a strong Granger causal relationship between money and broken-detrended output (but not first-differenced output), even when different short-term interest rates are used as regressors. However, after 1985 this relationship weakens significantly, whether or not one determines that output has a unit root. © 1997 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Date: 1997
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