M3 (Broad Money): Definition, Components, and Role

M3 is the broadest measure of a country’s money supply. It includes highly liquid money plus less-liquid financial assets that serve as stores of value for institutions and large investors. The measure is useful for understanding the total amount of money available in the economy beyond what households and individuals typically hold.

What M3 includes

• All components of M2 (currency, demand deposits, savings accounts, retail money market funds, small time deposits)
• Large time (term) deposits held by institutions
• Short-term repurchase agreements and other large, less-liquid instruments

Because M3 aggregates both liquid and less-liquid assets, it reflects money that is not readily convertible into cash for everyday transactions but still represents purchasing power in the financial system.

How M3 is calculated and a key limitation

In practice, M3 has been computed by aggregating its components without weighting adjustments—each component is treated equally in the aggregate. That simplification makes M3 easy to construct but assumes all components affect the economy the same way. In reality, liquid deposits and large time deposits behave differently, so the equal-weighting limits M3’s usefulness for monetary policy.

Why the Federal Reserve stopped publishing M3

The U.S. Federal Reserve discontinued publication of M3 in 2006. Reasons included:
– Limited usefulness for guiding monetary policy compared with narrower aggregates such as M2
– Data-collection costs and concerns about data quality and interpretability
– A long-standing shift in policy emphasis away from money-aggregate targeting (e.g., public statements in the 1980s–1990s that money aggregates would not be primary policy guides)

Although the Fed no longer publishes M3, some institutions (notably the Federal Reserve Bank of St. Louis and private analysts) continue to construct and track M3-style series for research and historical comparison.

How M3 compares with other aggregates

• M0: Physical currency in circulation (coins and banknotes).
• M1: M0 plus demand deposits (checking accounts), traveler’s checks, and other forms of immediately spendable money.
• M2: M1 plus near-money assets such as savings deposits, small time deposits, and retail money market funds.
• M3: M2 plus large time deposits, institutional money market instruments, and other less-liquid items.

Put simply: M3 = M2 + the large, less-liquid components used mainly by financial institutions and corporations.

Relevance today

• M3 offers a broad picture of aggregate liquidity and institutional stores of value, which can be informative for long-term inflationary pressures and financial stability analysis.
• Because the Fed no longer uses or publishes M3, analysts rely on reconstructed series from other sources when they want that broader perspective.

Quick FAQs

• Is M3 still published?
  The Federal Reserve stopped publishing M3 in 2006. Other organizations continue to publish reconstructed M3 series for analysis.
• Why might an economist use M3?
  To assess broader liquidity and institutional funding trends that aren’t captured by M1 or M2 alone.
• What is the main drawback of M3?
  Its components are aggregated equally, which can mask important behavioral differences between highly liquid and less-liquid assets.

Bottom line

M3 is the most comprehensive money-supply measure, capturing both liquid money and larger, less-liquid financial instruments used primarily by institutions. The Fed discontinued official M3 publication because it offered limited additional policy insight over narrower aggregates, but reconstructed M3 data remain a useful tool for some economic and historical analyses.