M3

Demystifying M3: Understanding the Broader Money Supply

Unraveling M3

M3, a component of the money supply, encompasses M2 along with larger time deposits, institutional money market funds, and other less-liquid assets. This classification sheds light on the financial landscape of larger entities rather than individual consumers.

Deciphering M3

The M3 metric provides a comprehensive view of an economy's money supply, emphasizing assets' store-of-value aspect over their medium of exchange function. Despite its historical use in economic analysis and policy-making, M3's methodology has limitations, particularly its equal weighting of components.

Transition to MZM

In recent years, M3 has fallen out of favor, with money zero maturity (MZM) emerging as a more preferred measure of readily available money in the economy. The disuse of M3 by central banks, including the Federal Reserve, underscores its diminishing relevance in monetary policy decisions.

Comparing M-Classifications

M3 serves as an aggregation of all preceding money classifications (M0, M1, and M2) while incorporating less-liquid components. Each classification encompasses progressively broader forms of money, from physical currency to various types of deposits and financial assets.