Money, Income, and Sunspots: Measuring Economic Relationships and the Effects of Differencing

By Charles I. PlosserG. William Schwert
1977| Working Paper No. 360

Various techniques for estimating linear relationships between economic time series are considered. We argue that many economic models should be estimated between the changes of the variables, rather than the levels of the variables. Examples from Friedman and Meiselman’s [1963] study of annual income from 1897-1960 are used to illustrate the arguments.