ANOTHER LOOK AT THE EVIDENCE ON MONEY INCOME CAUSALITY

Stock and Watson's widely noted finding that money has statistically s ignificant marginal predictive power with respect to real output (as m easured by industrial production), even in a sample extending through 1985 and even in the presence of a short-term interest rate, is not ro bust to two plausible changes. First, extending the sample through 199 0 renders money insignificant within Stock and Watson's chosen specifi cation. Second, using the commercial paper rate in place of the Treasu ry bill rate renders money insignificant even in the sample ending in 1985. A positive finding is that the difference between the commercial paper rate and the Treasury bill rate does have highly significant pr edictive value for real output, even in the presence of money, regardl ess of sample. Alternative results, based on forecast error variance d ecomposition in a vector autoregression setting, confirm these finding s by indicating a small and generally insignificant effect of money an d a large and highly significant effect of the paper-bill spread on re al output.