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Money, Income, Prices, and Interest Rates


  • Friedman, Benjamin M
  • Kuttner, Kenneth N


Including data from the 1980s sharply weakens the postwar time-series evidence indicating significant relationships between money (however defined) and nominal income or between money and either real income or prices separately. Focusing on data from 1970 onward destroys this evidence altogether. Evidence indicating cointegration of real income and real money balances, with due allowance for the effect of interest rates, also deteriorates when the sample extends through the 1980s. A positive finding is that the spread between the commercial paper rate and the Treasury bill rate consistently contains highly significant information about future movements in real income. Copyright 1992 by American Economic Association.

Suggested Citation

  • Friedman, Benjamin M & Kuttner, Kenneth N, 1992. "Money, Income, Prices, and Interest Rates," American Economic Review, American Economic Association, vol. 82(3), pages 472-492, June.
  • Handle: RePEc:aea:aecrev:v:82:y:1992:i:3:p:472-92

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    References listed on IDEAS

    1. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
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    3. Gregory Mankiw, N. & Shapiro, Matthew D., 1985. "Trends, random walks, and tests of the permanent income hypothesis," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 165-174, September.
    4. Campbell, John Y & Mankiw, N Gregory, 1990. "Permanent Income, Current Income, and Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 265-279, July.
    5. Fumio Hayashi, 1985. "The Permanent Income Hypothesis and Consumption Durability: Analysis Based on Japanese Panel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1083-1113.
    6. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    7. John Y. Campbell & Angus Deaton, 1987. "Is Consumption Too Smooth?," NBER Working Papers 2134, National Bureau of Economic Research, Inc.
    8. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
    9. Barsky, Robert B & Mankiw, N Gregory & Zeldes, Stephen P, 1986. "Ricardian Consumers with Keynesian Propensities," American Economic Review, American Economic Association, vol. 76(4), pages 676-691, September.
    10. Robert E. Hall, 1987. "Consumption," NBER Working Papers 2265, National Bureau of Economic Research, Inc.
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