MORE EVIDENCE ON THE MONEY-OUTPUT RELATIONSHIP

Recent studies have found that money loses its explanatory power over output if the 1980s are included in the sample. Interest rates, not mo ney, appear to predict output. Using annual data for 1915-1993 and qua rterly data for 1960-1993, we demonstrate that the supposed breakdown in the money-output relationship stems from the type of stationary ass umption imposed on the data. Assuming difference-stationary produces r esults found in the literature. Assuming trend-stationary produces res ults indicating that money and output remain statistically related. Mo reover, the change in the stationarity assumption greatly affects the quantitative importance of interest rates in explaining output.