A New Test of Money-Income Causality

This paper investigates the prima facie causal relationship between money and income employing a methodology--the multiple rank F test--the results of which are invariant to monotonic transformations of all variables and robust over alternative distributions of the errors. In contrast to prior functional-form dependent parametric analyses, evidence of prima facie causality between money and income is found for the 1970-88 time period. This evidence is consistent with an elementary theoretical framework in which the direction and strength of causality is dependent upon the definition of money.