Monday, April 9, 2012
What the heck is M0,1,2,3,4 By Kumar Gaurav in Indian Economy (IAS OUR DREAM)
When the financial markets in our study, often referred to M0, M1, M2, M3, L money supply, what are they mean?
What is the first to talk about the money supply (in English Monetary Aggregates): it is calculated with different amount of currency liquidity, performance indicators of the overall structure of the currency.
Money supply consists of:
M0 --- M1 --- M0 + demand deposits of cash M2 --- M1 + time deposits, savings deposits of non-checking of private institutions M3 --- M2 + large time deposits, and the company's various securities L ---- M3 +
In these three levels?
M0 is closely related with the consumption changes, the most active currency;
M1 reflects the tightness of residents and changes in enterprise fund, is a leading indicator of economic cyclical fluctuations, liquidity, second only to M. ;
M2 weak liquidity, but reflects changes in aggregate demand and future inflation pressure situation, commonly referred to as the money supply, mainly referring to M2;
M3 money supply indicators, a measure of money supply is the main index, which includes notes, coins, demand deposits, time deposits, and 4-year period, that M3 = M2 + time deposits with other financial institutions and savings deposits. European Central Bank with the growth rate of money supply as measured through
Inflation pressure. By examining the different levels of the economic impact of the currency to the changes from selected with the closest relationship to the economy of monetary assets, as the central banks to control the focus, is conducive to the central bank control money supply, and timely implementation of monetary policy effects observed. Central Bank
Of M3 growth target set a year range, higher than the range of M3 growth of inflationary concerns.
The Government is withholding money the Government is providing money for the central bank issued credit guarantees to obtain the corresponding seigniorage seigniorage income tax revenue, but he is invisible, the central bank by the government directive for him to repay the debt written off.
The central bank issued currency to the community generally are: cash counterpart notes issued under the capital notes and bank notes issued
Cash in circulation M0 = M1 = cash in circulation + deposits can deal with (check deposit transfer credit card deposits)
M2 = M1 + non-trading with the deposits (savings deposits)
M3 = M2 + all other monetary short-term liquid assets (Treasury bonds commercial paper and large negotiable certificates of deposit, etc.)
The amount of cash in circulation M0 narrowest sense, as the currency M1 directly reflects the purchasing power of the community, the supply of goods and M1 should be proportional to maintain the right, otherwise the economy will overheat or depression.
M2 reflects the purchasing power of reality, but also reflects the potential purchasing power of M2, in particular, to grasp the change of its composition, analysis of the situation on the whole national economy, forecasting has a special significance.
Is the narrow money supply M1, M2 is the broad money supply; M1 and M2 is the difference between the quasi-currency.
The difference between the two countries:
In Samuelson's "Macroeconomics" in the M1 = cash + check; M2 = M1 + savings deposits. The banking system in the UK there are M0, M3 and other projects. According to the National Bureau of public information that we, our country is based on M0, M1, M2 for the frame system. Which monetary aggregates: M0,
Cash in circulation M0 = M1 = M0 + demand deposits of non-financial companies M2 = M1 + time deposits of non-financial companies + savings deposits + other deposits.
There is no doubt that we are imitating the so-called modern foreign bank management, statistical system established by the M system. But for many years in the M system is just imitate, but no real economic significance.
For example, the two countries in the M system, the same as if the value of M1, the United States, there is the real economic significance of the cash M1, while China has real economic significance of the cash will have far less than the M1. This difference in units of the Chinese economy is not enough currency in circulation, while the United States relative to China
There are plenty of currency.
Because the cause of this difference, the Chinese can not be directly converted into cash the check, although it is currency.
Another example is the M2 project, if the M2 are the same, a large savings in China, but the circulation, there is a practical little economic significance of currency, because China's M2 is high savings account out, but almost all of the United States is the M1 (U.S. savings rate is very low) is all real M0, ie
Majority decision notes, the currency market has sufficient economic significance. But China is a market there is a serious lack of real economic significance of the currency.
This is why the U.S. has tended to use the M2 to control monetary reasons.
China's financial sector is still in charge, whether some theorists have been a very stubborn and stupid view that Americans do not save. In fact, this is a fallacy that Americans are people too, need clothing, food, pension and other payments, these payments also need to hold
Money stock, then why the U.S. savings rate is low? In fact neither Americans do not save, nor is it the Americans have no money, but they are not saving money stock item, but under the check, that is M1 item.
Therefore, the same M2, M1, M0 level, a large number of U.S. M system with the actual economic significance of the currency, while China is a serious money shortage.
If China's financial reform and just change the M system, the actual situation in China's currency would make economic sense to increase more than ten trillion (savings turn into a check in convertible notes), but does not require any change in the monetary aggregates.
Another, the United States and Western countries in order to facilitate the establishment of M system is the number of statistical and control the printing and observation of economic trends. Which are large and the general amount of the check, this is the distinction between M1 and M2 of the key, that the number of transactions are large transactions, the number of cross-
Yi is the general amount of the transaction. Mainly in large transactions between large companies and investment transactions.
As mentioned above, regardless of M1, M2, the free convertibility of the check, the two have a real economic significance. The same meaning in the monetary aggregate, but there are important on the use of funds in Economics. M1 money supply to occur, the consumer and end-market activity; to
M2 appears, the investment and middle market active.
Federal Reserve and commercial banks could then determine how to determine monetary policy. M1 M2 too high too low, indicating that overheated investment demand, the risk of crisis; M1 M2 too low, suggesting that strong demand, insufficient investment, there is price risk. Remained in the money supply is stable
M0, M1, M2 refers to all currencies.
M0 refers to the cash in circulation.
M0 M1 refers to the commercial banking system with a check deposit.
M2 refers to M1 plus time deposits of commercial banks and savings deposits.
The above definition may not be easy to understand, I want to be popular this:
For liquidity purposes, M0 best, because no matter what the cash shop seller will accept.
M1 middle, my understanding is that M1 refers to the bank can not directly be used to purchase the currency. Because they can directly purchase by check, cash, needless to say. Although the check can be shopping, but not all sellers are acceptable, why they go to the M1, no return to the M0 of.
M2 the second, I would like to M2 can be understood as "to achieve the purpose of shopping," the currency, although the "commercial bank time deposits and savings deposits" can not directly purchase, but the total can go to the bank where the money taken out shopping now.
Typically, central banks are concerned about these three money supply indicators, look at the amount of money in circulation in society is not appropriate, then adjust monetary policy, for example, to adjust interest rates, ah, ah, and so the reserve ratio adjustments in order to smooth the economy , price stability and so on.
Finance in the M1, M2, M3, M4 are the currency of the division-level
M0 = cash in circulation;
M1 = M0 + personal credit card revolving credit + banks + demand deposits, bank debit card acceptance check for the balance of demand deposits + enterprises listed;
M2 = M1 + individual under the non-bank card deposits + demand deposits + government agencies and organizations of rural deposits; M3 = M2 + time deposits + residents of the RMB business savings deposits + other deposits (trust deposits, trust deposits, margin deposits, treasury deposits XB) + Foreign currency (RMB
M4 = M3 + money market fund shares ten non-bank financial institutions + repurchase agreements, short-term non-bank enterprises held by the government and financial bonds, + Housing Fund deposits.
The recommendations of an expert learning is a matter of fact by way of the money supply at this stage is divided into three levels, namely:
M0: cash in circulation, that is, cash in circulation outside the banking system;
M1: narrow money supply, that is, enterprises and institutions M0 + demand deposits;
M2: broad money supply, that is, enterprises and institutions time deposits + M1 + savings deposits of residents.
In these three levels, M0 is closely related with the consumption changes, the most active currency;
M1 reflects the tightness of residents and changes in enterprise fund, is a leading indicator of economic cyclical fluctuations, liquidity, second only to the M0; M2 weak liquidity, but reflects changes in aggregate demand and future inflationary pressure condition, commonly referred to as the money supply, mainly referring to M2.
Currency by the central bank issues in each country, the central bank no commercial functions, the management control money M0, M1, M2
In the modern economy, the various countries had only one bank can print money, that is, "the central bank." Central bank is one of the most important institutions. Central banks lend money to print out the "commercial bank", the commercial banks then lend to businesses or individuals to earn interest.
Central Bank currency withdrawn from circulation and from commercial banks, burned part of the cash, also published a number of new banknotes, the cash to maintain the total number of ideal, ie the number of M0. Most of the loans is to use paper or electronic situation, take account of the large, and there is no corresponding cash, much higher than the total number of M0's
Quantity, is the narrow money M1 and broad money M2. For example, checks, demand deposits operator M1. M2 includes M1, out of the body more than the bulk of such deposits.
A country's inflation, the currency of international exchange currency, the real economic capacity in the country and the central bank manipulation of M0, M1, M2 decision. Not interested in central bank money, because money is printed it, it does not make sense, its task is to make a smooth operation of national economic
OK, that is, control inflation, currencies and the like. A country's economic growth, the central bank can M0, M1, M2 values enlarge some people still feel that your foreign currency as the original value. This is no consideration to print out multiple loans, that the Government
Engage in direct result of the economic equivalent of "seigniorage", the government can take it dry wanted to do their own thing. The Chinese government recently made a really central bank loans money to print money much faster growth than GDP growth, but still no inflation, the renminbi should appreciate. Chiang Kai-shek is not much
Civil war capital to India by the central bank crazy M0, M1 and the like making money out to fight, then hyperinflation.
In order to prevent the Central Bank printing money chaos, the general requirements for printed money when the government has a corresponding gold and silver, with a pass bills, foreign exchange, securities, etc., for the issue of preparation. But this is very complicated, the actual operation is a dynamic equilibrium, exchange rates, inflation, changes in regulation ruffle too special
Industry has. But often transferred to the State to the economic crisis, and its most direct explanation is that the country's central bank fails, some data have become very bad, but no way to stop it.
China's reform and opening up a previously ignored this country to a bank: the People's Bank of China. Printing money is it, and loans to individuals or units is it. Central Bank and commercial banks that engage in a package, because it is a planned economy, not for print money to make money, but to
Afterwards convenient, not to engage in less complex. Reform, and so do not. In 1984, came up with the "big four commercial banks": Bank of China, Construction Bank, Industrial and Commercial Bank, Agricultural Bank, in theory, the People's Bank to take over the commercial functions, the People's Bank of the Central Bank of dry concentrate
Things. Theoretically four lines should be independent ran profits go, is actually still take orders from the Chinese government, function is unclear, chaotic enough, come up with a pile of bad debts. Recently packed more modern, and can be listed, how much profit each year can be calculated as a decent model. I
We know that the four lines will be listed, but the people banks are not listed (and can not package), because it is the central bank, a government agency.
A lot of news is that some banks pull to Chequ specialized vocabulary, people used to listen to, as if to understand, but the meaning is Shiyao most people do not understand. After reading this post hopes the reader to see easily when the news of professional vocabulary corresponds to the most primitive economic behavior up.
M3 is what the United States to stop the M3 money supply report, What is the significance of this it?
M3 is wider than the broad money M2, is set up for financial innovation
M3 is wider than the broad money M2, is set up for financial innovation, such as short-term financing bonds is the M3. M3 includes M2, M2 includes M1. Theory is the most widely M4. The details of this system is more complex, a class added to the currency up more and more abstract meaning of "quasi-money"
I'm just an amateur to know a ballpark, the details are not clear. M3 Chinese government should have the account, but only announced M0, M1, M2. Some countries will be published M3.