The relative impacts of the monetised and non‐monetised deficit on output and inflation in the United States are assessed using annual data for the 1923‐1982 period. With Federal Reserve purchases of government debt serving as a measure of monetisation, the results of Granger causality tests suggest that for the period 1923‐1960 neither deficit growth nor monetisation affected real GNP growth, nominal GNP growth or inflation. For the period 1961‐1982, monetisation is found to have fuelled inflation with no effect on real GNP. Non‐monetised deficits provided a negative short‐run impact on the rate of inflation over this latter period.
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