How this calculator works
Monetary aggregates nest inside one another by liquidity. The monetary base, M0, is currency in circulation plus banks' reserve balances at the central bank. M1 adds the deposits the public can spend immediately: checkable deposits and travellers cheques. M2 broadens the definition to savings deposits, small time deposits and retail money market funds. M3 adds large time deposits, repos, eurodollar deposits and institutional money market funds. MZM, money of zero maturity, strips out small time deposits and adds institutional funds to isolate money available without a penalty. M4 is a broad liquidity measure used in some countries and defined here as M3 plus commercial paper and Treasury bills. Exact definitions differ between statistical agencies and change over time; the Federal Reserve stopped publishing the M3 aggregate in 2006, though historical series remain available.
Formula
M0 = notes + coins + reserve balances. M1 = notes + coins + travellers cheques + checkable deposits. M2 = M1 + savings + small time deposits + retail money market funds. MZM = M2 - small time deposits + institutional money market funds. M3 = M2 + large time deposits + eurodollar deposits + repos + institutional money market funds. M4 = M3 + commercial paper + Treasury bills.
Worked example
With notes of 1,000, coins of 50 and reserve balances of 800, M0 is 1,850 million. Adding 2,000 of checkable deposits and 20 of travellers cheques gives M1 of 3,070 million. Savings of 4,000, small time deposits of 500 and retail funds of 700 raise M2 to 8,270 million, and the remaining components give MZM of 8,370 million, M3 of 9,770 million and M4 of 10,170 million.
Advertisement
Frequently asked questions
Why is M0 smaller than M1?
M0 counts only central bank liabilities: currency held by the public and reserves held by banks. M1 counts deposits held by the public, which are much larger than reserves. Reserve balances are a bank asset and do not belong in M1.
What does money of zero maturity mean?
It is money that can be redeemed at face value immediately, without an interest penalty or maturity delay. MZM removes small time deposits, which carry a penalty for early withdrawal, and adds institutional money market funds, which are redeemable at short notice.
Why did the United States stop publishing M3?
The Federal Reserve judged that M3 did not convey information about economic activity that was not already in M2, and the cost of collecting it was not justified. Some other countries still publish broad measures such as M4.