Victoria Consolvo

During the early part of the Great Inflation (1965-1975), the Federal Reserve undertook even-keel operations to assist the US Treasury’s coupon security sales. Accordingly, the central bank delayed any tightening of monetary policy and permanently injected reserves into the banking system. Using real-time Taylor-type and McCallum-like reaction functions, we show that the Fed routinely undertook these operations only when it was otherwise tightening monetary policy. Using a quantity-equation framework, we show that the Federal Reserve’s even-keel actions added approximately one percentage point to the overall 5.1 percent average annual inflation rate over these years.

Measuring economic growth is complicated by seasonality, the regular fluctuation in economic activity that depends on the season of the year. The BEA uses statistical techniques to remove seasonality from its estimates of GDP, but some research has indicated that seasonality remains. As a result, the BEA began a three-phase plan in 2015 to improve its seasonal-adjustment techniques, and in July 2018, it completed phase 3. Our analysis indicates that even after these latest improvements by the BEA, residual seasonality in GDP growth remains. On average, this residual seasonality makes GDP growth appear to be slower in the first quarter of the year and more rapid in the second quarter of the year. Rapid second-quarter growth is particularly noticeable in recent years. As a result, business economists and policymakers may want to take seasonality into account when using GDP to assess the health of the economy.