Empirical Measures in The United States Federal Reserve System
- See also European Central Bank for other approaches and a more global perspective.
Money is used as a medium of exchange, in final settlement of a debt, and as a ready store of value. Its different functions are associated with different empirical measures of the money supply. There is no single "correct" measure of the money supply. Instead, there are several measures, classified along a spectrum or continuum between narrow and broad monetary aggregates. Narrow measures include only the most liquid assets, the ones most easily used to spend (currency, checkable deposits). Broader measures add less liquid types of assets (certificates of deposit, etc.).
This continuum corresponds to the way that different types of money are more or less controlled by monetary policy. Narrow measures include those more directly affected and controlled by monetary policy, whereas broader measures are less closely related to monetary-policy actions. It is a matter of perennial debate as to whether narrower or broader versions of the money supply have a more predictable link to nominal GDP.
The different types of money are typically classified as "M"s. The "M"s usually range from M0 (narrowest) to M3 (broadest) but which "M"s are actually used depends on the country's central bank. The typical layout for each of the "M"s is as follows:
| Type of money | M0 | MB | M1 | M2 | M3 | MZM |
|---|---|---|---|---|---|---|
| Notes and coins (currency) in circulation (outside Federal Reserve Banks, and the vaults of depository institutions) | V | V | V | V | V | V |
| Notes and coins (currency) in bank vaults | V | |||||
| Federal Reserve Bank credit (minimum reserves and excess reserves) | V | |||||
| traveler's checks of non-bank issuers | V | V | V | V | ||
| demand deposits | V | V | V | V | ||
| other checkable deposits (OCDs), which consist primarily of negotiable order of withdrawal (NOW) accounts at depository institutions and credit union share draft accounts. | V | V | V | V | ||
| savings deposits | V | V | V | |||
| time deposits less than $100,000 and money-market deposit accounts for individuals | V | V | ||||
| large time deposits, institutional money market funds, short-term repurchase and other larger liquid assets | V | |||||
| all money market funds | V |
- M0: In some countries, such as the United Kingdom, M0 includes bank reserves, so M0 is referred to as the monetary base, or narrow money.
- MB: is referred to as the monetary base or total currency. This is the base from which other forms of money (like checking deposits, listed below) are created and is traditionally the most liquid measure of the money supply.
- M1: Bank reserves are not included in M1.
- M2: Represents money and "close substitutes" for money. M2 is a broader classification of money than M1. Economists use M2 when looking to quantify the amount of money in circulation and trying to explain different economic monetary conditions. M2 is a key economic indicator used to forecast inflation.
- M3: M2 plus large and long-term deposits. Since 2006, M3 is no longer tracked by the US central bank. However, there are still estimates produced by various private institutions.
- MZM: Money with zero maturity. It measures the supply of financial assets redeemable at par on demand.
The ratio of a pair of these measures, most often M2/M0, is called an (actual, empirical) money multiplier.
Read more about this topic: Money Supply
Famous quotes containing the words empirical, measures, united, states, federal, reserve and/or system:
“To develop an empiricist account of science is to depict it as involving a search for truth only about the empirical world, about what is actual and observable.... It must involve throughout a resolute rejection of the demand for an explanation of the regularities in the observable course of nature, by means of truths concerning a reality beyond what is actual and observable, as a demand which plays no role in the scientific enterprise.”
—Bas Van Fraassen (b. 1941)
“The reliance on authority measures the decline of religion, the withdrawal of the soul.”
—Ralph Waldo Emerson (1803–1882)
“America—rather, the United States—seems to me to be the Jew among the nations. It is resourceful, adaptable, maligned, envied, feared, imposed upon. It is warm-hearted, overfriendly; quick-witted, lavish, colorful; given to extravagant speech and gestures; its people are travelers and wanderers by nature, moving, shifting, restless; swarming in Fords, in ocean liners; craving entertainment; volatile. The schnuckle among the nations of the world.”
—Edna Ferber (1887–1968)
“If I be false, or swerve a hair from truth,
When time is old and hath forgot itself,
When waterdrops have worn the stones of Troy,
And blind oblivion swallowed cities up,
And mighty states characterless are grated
To dusty nothing, yet let memory
From false to false among false maids in love
Upbraid my falsehood.”
—William Shakespeare (1564–1616)
“There are always those who are willing to surrender local self-government and turn over their affairs to some national authority in exchange for a payment of money out of the Federal Treasury. Whenever they find some abuse needs correction in their neighborhood, instead of applying the remedy themselves they seek to have a tribunal sent on from Washington to discharge their duties for them, regardless of the fact that in accepting such supervision they are bartering away their freedom.”
—Calvin Coolidge (1872–1933)
“Her face had the seamed reserve of the old in this country [Japan]. It was a neighborhood poignantly rich in old ladies.”
—Angela Carter (1940–1992)
“Nothing is so well calculated to produce a death-like torpor in the country as an extended system of taxation and a great national debt.”
—William Cobbett (1762–1835)