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November 1983, 
Vol. 65, No. 9
Posted 1983-11-01

Seasonal Adjustment of the Money Supply

by Scott E. Hein and Mack Ott

Scott E. Hein and Mack Ott note that economic activity typically varies systematically over the year—in response to the seasons, holidays, and a variety of other annually recurring activities. For many analytical and policymaking purposes, it is useful to remove this seasonal variability in economic data so that longer-term influences and trends are more clearly revealed. For this reason, the most widely cited economic data, such as figures about GNP, employment or monetary growth, typically are reported in a seasonally adjusted form. Since 1982, the seasonal adjustment procedure applied to U.S. monetary data has been the X-ll ARIMA procedure, which is a variant of the X-ll seasonal adjustment procedure developed by the Census Bureau of the U.S. Department of Commerce. While this procedure is well understood and widely used on economic data by governments around the world, its performance in seasonally adjusting money is subject to two important criticisms: bias and smoothing. These shortcomings present crucial problems both for the setting of monetary policy and its subsequent evaluation. Hein and Ott discuss these problems and assess recent proposals to deal with them.