The ECB's definition of euro area monetary aggregates

The ECB's definition of euro area monetary aggregates is based on the following:
  • A harmonised definition of the money-issuing sector. It consists of those entities which issue liabilities with a high degree of moneyness to non-MFIs located in the euro area (excluding central government). This sector comprises MFIs resident in the euro area.
  • A harmonised definition of the money-holding sector, which comprises all non-MFIs resident in the euro area (except central government). In addition to households, non-financial corporations and financial institutions which are not MFIs are included, as well as state and local governments and social security funds. Central governments are considered to constitute a "money-neutral" sector, with one exception: central government liabilities with a monetary character (Post Office accounts, national savings accounts and Treasury accounts) are included as a special item in the definition of monetary aggregates.
  • The harmonised definitions of MFI liabilities categories. These make it possible to distinguish between MFI liabilities according to their degree of moneyness, while also taking into account the features of different financial systems.
Based on conceptual considerations and empirical studies, and in line with international practice, the Eurosystem has defined a narrow aggregate (M1), an "intermediate" aggregate (M2) and a broad aggregate (M3). These aggregates differ with regard to the degree of moneyness of the assets included. Table 1 shows the definitions of the euro area monetary aggregates using the definition of liabilities issued by the MFI sector, as well as by entities belonging to the central government sector (Post Offices, Treasuries) of the euro area. As noted above, these aggregates include only positions of residents in the euro area which are held with MFIs located in the euro area. Holdings by euro area residents of liquid assets denominated in foreign currency can be close substitutes for euro-denominated assets. Therefore, the monetary aggregates include such assets if they are held with MFIs located in the euro area.

Table 1: Definitions of euro area monetary aggregates
Liabilities ( 1 ) M1 M2
( 1 ) Liabilities of the money-issuing sector and central government liabilities with a monetary character held by the money-holding sector.
Currency in circulation X X X
Overnight deposits X X X
Deposits with an agreed maturity up to 2 years   X X
Deposits redeemable at a period of notice up to 3 months   X X
Repurchase agreements     X
Money market fund (MMF) shares/units     X
Debt securities up to 2 years     X

  • Narrow money (M1) includes currency, i.e. banknotes and coins, as well as balances which can immediately be converted into currency or used for cashless payments, i.e. overnight deposits.
  • "Intermediate" money (M2) comprises narrow money (M1) and, in addition, deposits with a maturity of up to two years and deposits redeemable at a period of notice of up to three months. Depending on their degree of moneyness, such deposits can be converted into components of narrow money, but in some cases there may be restrictions involved, such as the need for advance notification, delays, penalties or fees. The definition of M2 reflects the particular interest in analysing and monitoring a monetary aggregate that, in addition to currency, consists of deposits which are liquid.
  • Broad money (M3) comprises M2 and marketable instruments issued by the MFI sector. Certain money market instruments, in particular money market fund (MMF) shares/units and repurchase agreements are included in this aggregate. A high degree of liquidity and price certainty make these instruments close substitutes for deposits. As a result of their inclusion, M3 is less affected by substitution between various liquid asset categories than narrower definitions of money, and is therefore more stable.
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