Government borrowing and monetary accommodation

This paper re-examines the relationship between Treasury borrowing and monetary growth examined previously with annual data by Barro, Niskanen and Hamburger and Zwick. Our analysis, based on quarterly data, produces evidence of a positive and significant impact of total Treasury borrowing upon the growth of the monetary base for the 1954/I–1961/II and 1961/III–1974/IV periods but an insignificant coefficient for the Barro expenditure variable. When the coefficient instability during the 1961/III–1980/IV period is corrected by a dummy variable technique the debt coefficient is positive and significant and remains stable for this two decade period.