Understanding National Accounts by Unknown

Author:Unknown
Language: eng
Format: epub
Tags: Economics
ISBN: 9789264214637
Publisher: OECD Publishing
Published: 2014-10-20T03:00:00+00:00

Financial accounts and money supply: the example of the euro area

One often hears of “the money supply”, defined more or less broadly as the aggregates known as M1, M2 or M3. These “M” aggregates correspond to progressively broader definitions of money. Currently, in the euro area, only the money supply of the area as a whole has any economic significance, not that of each of the countries comprising it. (Some central banks in the euro area continue to publish a figure for money supply, but this only shows their country’s contribution to the euro-area money supply, but the trend of national contributions is not taken into account in monetary policy decisions). The European Central Bank (ECB) follows the “M” aggregates closely, using principally a measure of type “M3”, even though since 2003 this has been of secondary importance for the ECB compared with the inflation indicator. However, if M3 increases too rapidly, the ECB may take it into account in its interest rate decisions.

There is obviously a relationship between the financial accounts and the money supply aggregate and its counterparts. Starting with the simplified diagram of the financial accounts shown in the main text of this chapter, the extraction of the column “financial institutions” gives the following:

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