SEASONALITY AND THE MONETIZATION OF FEDERAL BUDGET DEFICITS

Prior findings that federal government budget deficits promptly lead to increases in the monetary base are unreliable. These findings are due largely to inadequate treatment of seasonality in post-war quarterly data. Once seasonality is properly modeled, no further short-run relation is apparent. Theory suggests that there may be a long-run relation between deficits and money growth. If such a relation exists, the sample of postwar U.S. data is too small to identify it.