Monetary Aggregates

AAA

DEFINITION of 'Monetary Aggregates'

Broad categories measuring the total value of the money supply within an economy. In the United States, the standardized monetary aggregates and their measured contents are known as:

M0 – Physical cash and coin
M1 – All of M0 plus demand deposits, traveler's checks
M2 – All of M1 plus savings deposits, money market shares

There is also an M3 aggregate that includes larger (greater than $100,000) time deposits and institutional funds. The M3 measure is no longer tracked by the Federal Reserve as of 2006, although analysts still calculate the figure broadly. The Federal Reserve uses monetary aggregates to measure the effects of open-market operations, like changing the discount rate or trading in Treasury securities.

INVESTOPEDIA EXPLAINS 'Monetary Aggregates'

Monetary aggregates are watched closely by economists and investors, as they give a clear picture of the true size of the "working" money supply. Frequent reporting of the M1 and M2 measures (data is published weekly) allows investors to measure the rate of change in the monetary aggregates and overall monetary velocity.

If the monetary aggregates are growing too quickly, it could trigger inflationary fears (more money chasing after the same amount of goods and services leads to rising prices) and cause central-banking groups to raise interest rates or otherwise halt money-supply growth.

While the monetary aggregates were once key in determining overall central-banking policy, the past few decades have shown a lower correlation between changes in the money supply and key metrics like inflation, GDP and unemployment.

RELATED TERMS
  1. M2

    A measure of money supply that includes cash and checking deposits ...
  2. M1

    A measure of the money supply that includes all physical money, ...
  3. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
  4. M0

    A measure of the money supply which combines any liquid or cash ...
  5. Economic Indicator

    A piece of economic data, usually of macroeconomic scale, that ...
  6. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
Related Articles
  1. How The U.S. Government Formulates Monetary ...
    Personal Finance

    How The U.S. Government Formulates Monetary ...

  2. How do open market operations affect ...
    Forex

    How do open market operations affect ...

  3. How The Federal Reserve Manages Money ...
    Personal Finance

    How The Federal Reserve Manages Money ...

  4. The History Of Money: Currency Wars
    Forex Education

    The History Of Money: Currency Wars

comments powered by Disqus
Hot Definitions
  1. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  4. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  5. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center