Abstract
The impact of monetary changes on the U.K. economy is examined within a causality testing framework. The bivariate test results indicate a causal flow from money (as approximated by the monetary base) to nominal output. An important contribution of this study is contained within its trivariate framework. The trivariate analysis, based upon the minimum final prediction error causality testing method, indicates that the main causal impact of money on nominal output operates through an acceleration of inflation, rather than through increases in real output. This impact on prices is positive and substantial. Copyright 1988 by Scottish Economic Society.
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