Selden's model of inflation: A reexamination

Selden has presented a model which appears to offer strong support for a monetary explanation of inflation. Using bivariate regression to relate percentage changes in quarterly prices to percentage changes in M1 in previous quarters, he finds values of R² from 0.70 to 0.88 and t-statistics of 12 or more when using data for the U.S., Canada, Belgium, and the Netherlands. Unfortunately, the unreported DW statistics for the regressions range from 0.30 to 0.46. Reestimated with a correction for autocorrelation, the t-statistics collapse, values of rho are almost unity, and there is little evidence to support a monetary explanation of inflation.