Interpreting the evidence on money-income causality

James H. Stock, Mark W. Watson

Research output: Contribution to journalArticlepeer-review

339 Scopus citations


Previous researchers have reached strikingly 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.

Original languageEnglish (US)
Pages (from-to)161-181
Number of pages21
JournalJournal of Econometrics
Issue number1
StatePublished - Jan 1989
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


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