Deficits, Politics and Money Growth

Kevin Grier and Howard E Neiman

Economic Inquiry, 1987, vol. 25, issue 2, 201-14

Abstract: The authors examine the linkage between federal deficits and money growth by allowing the Fed's resp onse to any given deficit to vary systematically according to how the deficit is generated and the party affiliation of the current presid ent. In equations for M1 and monetary base growth, the structural def icit is consistently significant and invariant across political chang es, while the cyclical component of the deficit (or a direct measure of the business cycle) is significant only during the tenure of Democ ratic presidents. Copyright 1987 by Oxford University Press.

Date: 1987
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