Monitoring Budget Deficits with Time Series Models

Time Series Models J V M Sarma The ministry of finance had come up last year with a method of determining normative levels of budget deficit at the end of each month of the fiscal year, using time series models of the Box-Jenkins type. Recently, Madhur and Wadhwa have contested the validity of the model specification. This note attempts to clear some of the misunderstandings expressed by Madhur and Wadhwa regarding the model used in the Technical Note. In brief it shows that the criticism levelled against the model is not quite warranted and the points raised are inconsequential.