On the relationship between money and inflation in the United States: Additional evidence

The causality between money and inflation is re-examined by applying Hsiao's version of the Granger causality method to US data for the period 1959-94. The Phillips-Perron unit roots tests are performed and the series of M(1) and M(2) become stationary after first differencing, while the series of CPI, PPI, GDP deflator, and M(3) become stationary after second differencing. It is revealed that money (measured in M(1) or M(2)) does not cause inflation, yet if the M(3) measure of money is used, then it is found that money causes inflation.