Monetary aggregates

Monetary aggregates are a formal way of measuring the total sum of money in an economy and a key reference for monetary policymaking. Monetary aggregates and their counterparts are derived from the consolidated balance sheet of the MFI sector and short-term deposit liabilities of post offices and specific central government entities. They consist of short-term liabilities to the money-holding sector (i.e. non-MFI euro area residents, excluding central government).

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• Statistical releases
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• Summary tables and interactive charts
• All available time series
• Methodology & legal basis
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Overview charts

This section includes a set of charts for quick reference and country comparison covering the outstanding amounts and transactions of MFIs.

Definition of monetary aggregates

Monetary aggregates are mainly derived from the consolidated balance sheet of the monetary financial institution (MFI) sector, which can also be regarded as the money-issuing sector. In addition to liabilities of euro area MFIs, the monetary aggregates also include deposits placed with post offices and central government (e.g. national savings accounts and Treasury accounts). On the other side of the equation, the money-holding sector is euro area residents other than MFIs and central government.

The types of liabilities included in the monetary aggregates are defined on the basis of liquidity – i.e. how quickly and easily they can be converted into cash or used for payments:

• M1 (narrow money) is the most liquid measure of money, comprising currency (banknotes and coins) in circulation and overnight deposits.
• M2 (intermediate money) includes M1 plus deposits with an agreed maturity of up to two years and deposits redeemable at notice of up to three months.
• M3 (broad money) includes M2 plus repurchase agreements, money market fund shares/units, and debt securities with a maturity of up to two years issued by MFIs.

Longer-term liabilities of MFIs are excluded from the definition of M3 as they are regarded as portfolio instruments rather than as a means of carrying out transactions. Nevertheless, they may be regarded as substitutes for some of the components of M3, at least as they approach maturity.

Table 1
Definition of euro area monetary aggregates

Counterparts of the broad monetary aggregate M3

As explained above, the monetary aggregates are mainly derived from the consolidated balance sheet of the MFI sector. By analysing the development of counterparts in the consolidated balance sheet, policymakers can gain an insight into the factors driving the expansion or contraction of the money supply.

In the ECB’s monthly press releases on monetary developments, the counterparts are broken down as follows:

• Claims on the euro area private sector: This includes MFIs’ holdings of loans, debt securities, equity and investment fund shares vis-à-vis the euro area private sector, i.e. non-MFIs excluding general government. An increase in lending to the private sector can contribute to an increase in M3 through, for example, the creation of new deposits.
• Claims on general government: This includes MFIs’ loans to the euro area government sector as well as their holdings of government securities and equity. MFIs’ purchases of government securities from the money-holding sector can contribute to an increase in the MFI sector’s claims on general government and to an increase in M3 through, for example, the creation of new deposits.
• Longer-term financial liabilities: This represents the longer-term funding sources of the MFI sector in the form of deposits with an agreed maturity of over two years, deposits redeemable at notice of over three months, debt securities issued by MFIs with a maturity of over two years, and the capital and reserves of the sector. An increase in these liabilities may lead to a decrease in M3, as it may be caused by a shift from more liquid to less liquid forms of money.
• Net external assets: This reflects the difference between the external assets and liabilities of the euro area MFI sector vis-à-vis non-euro area residents. An increase in net external assets can contribute to an increase in M3, as it reflects an inflow of money from outside the euro area.
• Remaining counterparts: This is a residual of the items not included in M3 or the above counterparts of M3. It includes, for example, MFIs’ non-financial assets and their remaining assets minus remaining liabilities (including net positions in financial derivatives). It also includes, as a negative, the deposits of central government held with the MFI sector. This residual can be considered as a balancing item.

Seasonal adjustment of monetary aggregates and counterparts

The ECB publishes seasonally adjusted outstanding amounts, transactions and growth rates of the main euro area monetary aggregates and their counterparts. The seasonal adjustment of time series involves estimating and removing fluctuations that occur in broadly similar recurrent patterns over the year (e.g. M1 is higher than average in December owing to the effect of Christmas bonuses and expenditure). The seasonal adjustment procedures used by the ECB also cater for the calendar adjustment of end-of-month calendar effects (e.g. end-of-month currency in circulation is higher on average when measured on a Friday, given that customers may withdraw additional cash for the weekend). These procedures are explained in detail in Section 7.5 of the Manual on MFI balance sheet statistics.