Money gap

The money gap (also: liquidity gap; English money gap ) is an economic indicator that indicates how much the actual money supply in an economy deviates from the medium-term, price-stable equilibrium money supply .

General

The equilibrium amount of money is the amount of money that would be demanded at the prevailing price level if the goods and money markets were in market equilibrium . The money market is in market equilibrium when money supply and money demand match ( LM function ). This market equilibrium does not cause inflation or deflation . That is why it is important for economic policy , especially the monetary policy of the central banks , to pay close attention to the money gap indicator . The European Central Bank (ECB) monitors the money gap within its “monetary pillars” , namely the second monetary pillar. These pillars form the basis of the European Central Bank's monetary policy. An imbalance in the money market results when the money supply and demand do not match; in the case of the money gap:

${\displaystyle {\text{Geldangebot}}<{\text{Geldnachfrage}}}$.

Conversely, if the money supply is greater than the money demand, there is a money surplus . The real economic counterpart is the supply gap .

species

A distinction must be made between the nominal and the real money gap. The nominal money gap ( English money gap nominal ) is the cumulative difference between the growth of the monetary aggregate M3 and the reference value . The real money gap ( english real money gap ) additionally takes the difference between the actual rate of inflation and price stability defined. If HICP inflation is above the defined price stability, the real money gap is smaller than the nominal.

It is important to point out that central bank money (including liquidity called - within the banking system = M0) until cash is not part of the monetary aggregate M3 and thus contrary to scriptural is only of minor importance in the calculation of the money gap.

Economic impact

The relative difference between the current money supply and the equilibrium money supply is the money gap.

The money supply is also essential for determining the growth opportunities and inflation risks of the economy. If there is too little money in circulation, this has a dampening effect on economic growth and inflation and vice versa. Possible inflation or deflation risks due to insufficient or excessive money supply for the economy can be estimated using the money gap. This corresponds to the positive ( money overhang ) or negative ( money gap ) percentage deviation of the money supply M3 from an equilibrium value, which is determined on the basis of the transaction volume of the economy and the opportunity costs of holding money.

Price gap

The price gap, in turn, is the difference between the long-term equilibrium and the current price level .

Individual evidence

1. ↑ Karl-Heinz Tödter, Monetary Indicators and Monetary Policy Rules in the P-Star Model , Economic Research Center of the Deutsche Bundesbank, June 2002, p. 3
2. ↑ Werner Rothengatter / Axel Schaffer, Macro compact: Grundzüge der Macroeconomics , 2008, p. 122
3. ↑ Hans-Joachim Jarchow, Grundriss der Geldpolitik , 2010, p. 133
4. ↑ Egon Görgens / Karlheinz Ruckriegel / Franz Seitz, European Monetary Policy: Theory - Empiricism - Practice , 2008, p. 194
5. ↑ Egon Görgens / Karlheinz Ruckriegel / Franz Seitz, European Monetary Policy: Theory - Empiricism - Practice , 2008, p. 194
6. ^ Deutsche Bundesbank: Glossary - Liquidity. Retrieved June 10, 2018 . 
7. ↑ Ralph Anderegg, Grundzüge der Geldtheorie und Geldpolitik , 2007, p. 327
8. ↑ Swiss National Bank, Quarterly Bulletin March 1/2010 , 2010, p. 35