Friday, February 19, 2016

Working out the Components of Base Money (and pulling out my hair)

Following Jim's link

gets me to the H.3 release -- the current H.3 release, the link suggests. Here's what I get from it.

From Table 2 Footnote 1:
Total Reserves = Total Reserve Balances Maintained plus Vault Cash Used to Satisfy Reserves.

Matching up FRED values to Release H.3 values shows that
TOTRESNS is Total Reserves
RESBALNS is Total Reserve Balances Maintained
VAULT is Vault Cash Used to Satisfy Reserves

From Table 2 Footnote 5:
Monetary Base = Total Balances Maintained plus Currency in Circulation.

Matching the values shows that
BOGMBASE = Total Monetary Base
BOGMBBM = Total Balances Maintained
"Total Balances Maintained" and "Total Reserve Balances maintained" are different series with the same values expressed in different units.
MBCURRCIR = Currency in Circulation

The Notes on MBCURRCIR at FRED say that Currency in Circulation includes Vault Cash. As it is not specified as "vault cash used to satisfy reserves" I assume they mean total vault cash.
TLVAULT is total vault cash.
The values match up, confirming my assumption.

Okay. If you have money "in reserve" that money is not "in circulation". That's why "reserves" are separate from "currency in circulation".

However, some of the currency in circulation is in bank vaults. And most of that money is set aside, in reserve. So even though it counts as currency in circulation when you're counting currency, it also counts as reserves, or *is* reserves, when you need it to be reserves. It's messy.

It's reserves in the form of currency. And that does make sense, because banks need to keep currency in reserve, in case their customers need it.

1 comment:

jim said...

Hi Art
If you are interested in monetary policy, the place to look is the H4.1 release