Monetary Aggregates Definition And Diagram
In finance and economics we recognize several types of money. Monetary aggregates are used to measure the supply of various types of money in an economy. The most commonly used aggregates are M0 through M3, plus monetary base. See the following diagram to understand how the aggregates relate to each other.
Monetary Aggregates Definition
These definitions are valid for the USA. In some countries there may be differences (in UK, for instance, M0 is identical to Monetary Base). From M0 to M3 liquidity decreases while stability increases.
- Currency (notes and coins) in circulation.
- Monetary Base
- + Currency in bank vaults;
- + Commercial bank reserves on deposit with the Federal Reserve.
- M1 (Narrow Money)
- + Demand deposits;
- + Other checkable deposits;
- + Traveler’s checks of non-bank issuers.
- M2 (Intermediate Money)
- + Savings deposits;
- + Small-denomination time deposits ( < $100,000);
- + Retail money market funds (money market deposit accounts for individuals)
- M3 (Broad Money)
- + Large-denomination and long-term time deposits;
- + Short-term repurchase and other larger liquid assets;
- + Institutional money market funds.