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The 1983 M1 seasonal factor revisions : an illustration of problems that may arise in using seasonally adjusted data for policy purposes

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  • Timothy Q. Cook

Abstract

Most Economists agree that the monetary aggregate targeted by the Fed should be measured in seasonally adjusted form so that predictable seasonal movements in the money stock are not transmitted unnecessarily to interest rates. However, seasonal adjustment procedures are far from perfect and can distort the true movement of a variable or even impact an artificial seasonality where none exists. In his article, The 1983 M1 Seasonal Factor Revisions: An Illustration of Problems That May Arise in Using Seasonally Adjusted Data for Policy Purposes, Timothy Q. Cook contends that seasonal adjustment problems made it appear as though M1 was growing more slowly in late 1983 than was actually the case. Cook offers two reasons for the seasonal adjustment difficulties in 1983. First, he argues that the introduction of money market deposit accounts in December of 1982 altered the means by which some consumers make large, seasonally predictable expenditures, such as tax payments and Christmas-related purchases. He also suggests that similarity in the intra-yearly pattern of the Federal funds rate in 1981 and 1982 may have caused seasonality in money demand that inappropriately affected the original 1983 seasonal factors.

Suggested Citation

  • Timothy Q. Cook, 1984. "The 1983 M1 seasonal factor revisions : an illustration of problems that may arise in using seasonally adjusted data for policy purposes," Economic Review, Federal Reserve Bank of Richmond, vol. 70(Mar), pages 22-33.
  • Handle: RePEc:fip:fedrer:y:1984:i:mar:p:22-33:n:v.70no.2
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    References listed on IDEAS

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    1. Thomas A. Lawler, 1977. "Seasonal adjustment of the money stock : problems and policy implications," Economic Review, Federal Reserve Bank of Richmond, vol. 63(Nov), pages 19-27.
    2. William P. Cleveland & David A. Pierce, 1981. "Seasonal adjustment methods for the monetary aggregates," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Dec, pages 875-887.
    3. Alfred Broaddus & Timothy Q. Cook, 1977. "Some factors affecting short-run growth rates of the money supply," Economic Review, Federal Reserve Bank of Richmond, vol. 63(Nov), pages 2-18.
    4. Thomas D. Simpson, 1980. "The redefined monetary aggregates," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Feb, pages 97-114.
    5. John P. Judd, 1983. "The recent decline in velocity: instability in money demand or inflation?," Economic Review, Federal Reserve Bank of San Francisco, issue Spr, pages 12-19.
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