Money-income causality: Results for six countries

In this paper we attempt to ascertain multivariate money-income causality. Previous studies using a bivariate framework likely suffer from bias as a result of omitted variables. A framework is developed where both U.S. money and domestic money in an open, nonreserve currency country may influence that country's income. Reverse causation from income to domestic money is also possible. We use data from six countries to test the model. Our results suggest that both U.S. and domestic money stocks are important determinants of income. Thus, bias exists in previous studies. However, our results vary by country and are sensitive to the measure of money included which suggests that important variables may still be omitted.