Money, Income and Sunspots

Measuring Economic Relationships and the Effects of Differencing


Charles I. Plosser

President, Federal Reserve Bank of Philadelphia,
and University of Rochester, Rochester, NY 14627


G. William Schwert

University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research


Journal of Monetary Economics, 4 (November 1978) 637-660


This paper discusses the question of whether economic time series regression models should be estimated between the levels or the changes of the variables of interest. We argue that many economic models should be estimated between the changes of the variables, rather than the levels of the variables. In addition, comparisons of the levels and changes regressions can be used as a crude test of model specification. These issues are illustrated with examples from Friedman and Meiselman's [1963] study of annual income and consumption and with data on sunspot activity from 1897-1958.

Key words: Differencing, Stationarity, Spurious regressions

JEL Classifications: C22


Cited 124 times in the SSCI and SCOPUS through 2016
© Copyright 1978, Elsevier
The following file contains the reprint of this paper in Acrobat's portable data format (.pdf). The file is about 1,099 KB and can only be viewed (and printed) using a copy of Acrobat Reader or Acrobat Exchange.

If you want the current version of the Adobe Acrobat Reader for other platforms, visit Adobe's web page by clicking the image below.

Click here to download this paper in PDF format.


Return to Publications Page

© Copyright 1998-2017, G. William Schwert

Last Updated on 8/8/2017