Monetary aggregates

economic-dictionary

The monetary aggregates are the elements that make up the money supply or money supply.

Therefore, monetary aggregates refer to the total money that is circulating in an economy. Thus, the measures of the concept of money are more liquid, that is, those elements that are used as a means of payment in the economy measured through the liabilities of financial institutions.

Seen in another way, monetary aggregates are a debt for the central bank, which issues the notes and coins, and an asset for the one who owns that money.

Types of monetary aggregates

There are three types of monetary aggregates defined by the vast majority of central banks:

  • M1: They are the bills and coins in the hands of the public.
  • M2: It is the sum of M1 plus short-term deposits (up to two years), savings books, demand accounts and the daily repurchase agreements that people have in the financial system.
  • M3: It is the sum of M1, M2, the shares of funds in the money market and money market instruments, such as private and public bonds (treasury bills) issued with a maturity of up to two years, term deposits and repurchase agreements term.

In some countries, monetary aggregates are also considered to the M4, M5 and M6.

The monetary aggregates in schematic form are:

The way the European Central Bank uses to measure these monetary aggregates is through the consolidated balance sheet of those Monetary Financial Institutions (MFIs) resident in the euro area and which are the issuers of money. From this balance, the counterparts of the monetary aggregates can be calculated.

To give an example, let's say that you go to a bank to open an account, said deposit is a liability for that bank and is considered and included within the narrower aggregate M1.

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