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.
Amanda L. Kramer