ABSTRACT
This chapter examines the interactions within a larger set of macroeconomic variables than that considered in the money-income causality studies. Estimates of the interrelations among the selected variables are calculated from quarterly seasonally adjusted data for three periods: 1886-1914, 1919-40, and 1949-82. The chapter also examines the lead-lag interactions within larger sets of important macroeconomic variables, including interest and inflation rates along with output, monetary and fiscal variables, and a nonduplicative leading index. The rationale for including this index is twofold: the changes in the leading index can be interpreted as representing the collective outcomes of investment and production decisions; and the addition of the leading index helps to overcome the omitted variables bias. The chapter discusses the applied methods and presents tests that determine what transformations must be used on any of the series to validate the statistical procedures.
