Interpreting Evidence on Money-Income Causality

James H. Stock and Mark Watson

No 2228, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Previous authors have reached puzzlingly different conclusions about the usefulness of money for forecasting real output based on closely related regression-based tests. An examination of this and additional new evidence reveals that innovations in M1 have statistically significant marginal predictive value for industrial production, both in a bivariate model and in a multivariate setting including a price index and an interest rate. This conclusion follows from focusing on the trend properties of the data, both stochastic and deterministic, and from drawing inferences using asymptotic theory that explicitly addresses the implications of these trends for the distributions of the various test statistics.

Date: 1987-04
Note: ME
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Citations: View citations in EconPapers (37)

Published as Journal of Econometrics, Vol. 40, No. 1, pp. 161-182, January 1989.

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Journal Article: Interpreting the evidence on money-income causality (1989)
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