RELATION TO MONEY AND PRICES

which was only faintly revealed by the first direct com-parisons is clearly revealed. The high correlation coeffi-cients obtained by means of the method of distributingthe influence of P' and i show that the theory tested inthis chapter conforms closely to reality, especially duringperiods of rather marked price movements.

Furthermore the results and other evidence, indicatethat, over long periods at least, interest rates follow pricemovements. The reverse, which some writers have as-serted, seems to find little support. Experiments, madewith United States short term interest rates, to test thealternative hypothesis of distributed influence of interestrate changes instead of price changes, gave results ofnegligible significance. Our investigations thus corrobo-rate convincingly the theory that a direct relation existsbetween P' and i, the price changes usually preceding anddetermining like changes in interest rates.

§7. Short Term Interest Rates and Prices in theUnited States

A study of short term commercial paper rates in re-lation to short term price movements corroborates theevidence obtained from correlating long term interestrates and price changes. The New York interest rateson short term commercial paper have been correlatedwith changes in the quarterly wholesale price indexescomputed from monthly indexes of the United StatesBureau of Labor Statistics for the periods 1890-1914 and1915-1927. 13

“Interest rates were taken from The Statistical Bulletin, 1928-1929,of The Standard Statistics Co. The price indexes are computed from theUnited States Bureau of Labor Statistics. See Appendix to this chapter,§2, for these quarterly data.

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