RATIONALITY OF PRELIMINARY MONEY STOCK ESTIMATES

Earlier studies have presented mixed evidence on the rationality of the Federal Reserve's preliminary money stock estimates. We investigate the rationality of M1A, M1, M2, and M3 for both seasonally- and not seasonally-adjusted data. We find preliminary growth rates of these aggregates to be rational for not seasonally adjusted data but irrational when data are seasonally adjusted. Using Monte Carlo studies, we conclude that irrationality in seasonally adjusted data arises from the specific seasonal adjustment procedure used by the Federal Reserve. As a result, researchers conducting similar tests may want to focus exclusively on not seasonally adjusted data.