Library
Glossary
Stable definitions of the terms used across the site, from base money to debt deflation.
B
- Base money Central bank money: currency in circulation plus reserves held by commercial banks.
- Broad money Money held by households and firms, mostly bank deposits. Measured by aggregates such as M1 and M2.
- Balance sheet A statement of assets, liabilities, and equity. Money creation is easiest to see as a balance sheet expansion.
- Bank run A self fulfilling panic in which depositors withdraw because they expect others to withdraw.
C
- Central bank The institution that issues base money, operates the payment system, and sets the stance of monetary policy.
- Commercial bank A bank that takes deposits, makes loans, and creates money in the process.
- Capital ratio A bank's equity relative to its risk weighted assets. A buffer against losses.
D
- Deposit A claim on a bank, usually repayable on demand or at short notice. Deposits are the main form of broad money.
- Debt deflation A self reinforcing contraction in which falling prices raise the real burden of nominal debt.
- Deflation A sustained fall in the general price level. Dangerous when it interacts with high nominal debt.
E
L
M
- Money A medium of exchange, unit of account, and store of value. In modern economies, most money is bank deposits.
- Maturity transformation Funding long term, illiquid assets with short term, liquid liabilities. Useful, and fragile.
- Money multiplier A textbook model in which a fixed reserve base supports a multiple of deposits. A poor description of modern…
- Money supply The stock of money in an economy, measured through aggregates such as M0, M1, and M2.
- Monetary policy Central bank actions to influence interest rates, credit conditions, and the economy.