The potential problem of reverse causality has been obvious to everyone. It has usually been met with the standard econometric dodge: using lagged values of slow-moving variables as instruments. But this cannot be a serious solution to the problem. The causality issue points to a deeper...

Different long-run rates of growth of money supply are eventually reflected in different rates of inflation. Tobin studied this in a simple descriptive model with aggregate saving depending only on current income. It was found that money growth was associated with higher capital stock and output...