What are 'Monetary Aggregates'

Money aggregates are broad categories that measure the money supply in an economy. In the United States, the standardized monetary aggregates are labeled M0 (physical paper and coin), M1 (all of M0 plus travelers checks and demand deposits), M2 (all of M1, money market shares and savings deposits); an aggregate known as M3 (which includes time deposits over $100,000 and institutional funds) has not been tracked by the Federal Reserve since 2006 but is still calculated broadly by analysts.

BREAKING DOWN 'Monetary Aggregates'

One additional aggregate is the monetary base (MB), which differs from money supply. The MB aggregate is not widely observed. It includes not only the total supply of money in circulation but specifically includes the portion of commercial banks' reserves that are stored within the central bank.

The Federal Reserve uses money aggregates as a metric for how open-market operations – like trading in Treasury securities or changing the discount rate – affect the economy. Investors and economists observe the aggregates closely because they offer a more accurate depiction of the actual size of a country’s working money supply. Because M1 and M2 data is reported on a weekly basis, investors are able to measure the money aggregates' rate of change and monetary velocity overall.


Studying monetary aggregates can generate a lot of information about the financial stability and overall health of a country. For example, monetary aggregates that grow at a pace that is too rapid may cause fear of overinflation – if there is a greater amount of money in circulation to be used on the same amount of goods and services, prices are likely to rise in response – which is a common example of the law of supply and demand. If this occurs, central banking groups are likely to be forced to raise interest rates or stop the money supply growth in some way.

For decades, monetary aggregates were essential for understanding a nation's economy and were key in establishing central banking policies in general. The past few decades have revealed that there is a lower connection between fluctuations in the money supply and significant metrics like inflation, as well as gross domestic product (GDP) and unemployment. As of 2016, the central bank's monetary policy is better understood by looking at the amount of the money the Federal Reserve is releasing into the economy. M2 is still considered to be useful as an indicator of potential inflation when it is compared to GDP growth.

  1. M1

    A measure of the money supply that includes all physical money, ...
  2. M2

    A measure of money supply that includes cash and checking deposits ...
  3. M0

    The term M0 is a measure of the money supply which combines any ...
  4. Narrow Money

    Narrow money is a category of money supply; it is physical money ...
  5. Near Money

    Near money is an economics term describing non-cash assets that ...
  6. Aggregate Limit

    The aggregate limit is the maximum amount an insurer will pay ...
Related Articles
  1. Insights

    Cost-Push Inflation Versus Demand-Pull Inflation

    Gain a deeper understanding of aggregate supply and demand, forces which raise the price of goods and services.
  2. Tech

    Top Problems with Financial Data Aggregation

    A new front in personal finance technology—data aggregation—seeks to make our financial lives easier. But here's why it may be stalling.
  3. Tech

    What Is Bitcoin's Intrinsic Value?

    What would bitcoin's price look like in the event of widespread adoption?
  4. Small Business

    M1 Finance LLC

    M1 Finance is a new robo-advisor that aims to take the work out of portfolio maintenance for DIY investors.
  5. Insights

    Debt Monetization: A Nearsighted Government Policy?

    We look at whether this financial practice benefits a government in the long term.
  6. Insights

    Fiscal Policy vs. Monetary Policy: Pros & Cons

    When it comes to influencing macroeconomic outcomes, governments have typically relied on one of two courses of action: monetary policy or fiscal policy.
  7. Tech

    Advisors: Stay Relevant with Data Aggregation

    Advisors wanting to remain competitive should consider embracing data aggregation tech, which many clients expect. Here's the lowdown on the trend.
  8. Insights

    How the Federal Reserve Manages Money Supply

    Find out how the Federal Reserve manages bank reserves and how this contributes to a stable economy.
  9. Insights

    The Top 6 Ways Governments Fight Deflation

    Here are six monetary and fiscal policy tools that governments use to fight deflation.
  1. What types of money are included in money supply?

    Read about several different monetary aggregates used to define the money supply, both at the Federal Reserve and by outside ... Read Answer >>
  2. What happens when M2 money supply grows faster than the overall economy?

    Find out what happens if the total supply of money and money substitutes expands at a faster rate than the productive output ... Read Answer >>
  3. What Factors Cause Shifts in Aggregate Demand?

    Find out how aggregate demand is calculated in macroeconomic models. See what kinds of factors can cause the aggregate demand ... Read Answer >>
  4. What's the difference between regular supply and demand and aggregate supply and ...

    Understand how businesses use supply and demand and aggregate supply and demand to forecast economic activity. Learn about ... Read Answer >>
  5. Why do Bitcoins have value?

    Performing with transactional anonymity, Bitcoin has value as a private digital currency, investment tool and social networking ... Read Answer >>
  6. How does monetary policy influence inflation?

    Take a deeper look at how contemporary central banks attempt to target and control the level of inflation through monetary ... Read Answer >>
Hot Definitions
  1. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  2. Entrepreneur

    An Entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture. ...
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  5. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  6. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
Trading Center