Understanding Money with Zero Maturity (MZM) in the Economy

Money with zero maturity (MZM), which represents all money that is readily available, is a measure of the liquid money supply within an economy. It is used in economic analysis for predicting inflation and growth.

MZM includes money that can be spent immediately, such as cash in hand or money in a checking account. Money in a bank CD would not be counted, however, because it cannot be spent or otherwise used immediately.

Understanding Money Zero Maturity (MZM)

For those familiar with money supply measurements, MZM includes the M2 measure less the time deposits, plus all money market funds. MZM has become one of the preferred measures of money supply because it better represents money that is readily available within an economy for spending and consumption. Furthermore, the Federal Reserve stopped tracking M3 in 2006.This measurement derives its name from its mixture of all the liquid and zero maturity money found within the three M’s.

MZM includes money in all of the following:

• Physical currency (coins and banknotes)
• Checking and savings accounts
• Money market funds

For money to be included in MZM it has to be redeemable at par value, which is why money in time-related deposits or certificates of deposit (CDs) are not included in MZM. Economists and central bankers use MZM along with the velocity of MZM to better predict inflation and growth because the more funds that are readily available, the more money there is to spend, which can be a sign of inflationary pressures.

Using MZM for Economic Insights

According to data from the St. Louis FRED, total MZM in the U.S economy first passed $1 trillion in 1982, and at the turn of the 20th century was $4.4 trillion. By 2008, preceding the Great Recession, the total MZM was $8.2 trillion, and as of June 2019, it had cleared $16 trillion.

This data isn’t a close predictor of the economy or of the stock market price trend. For example, though MZM’s total remained flat for most of 2005, the recession that started two years later in 2007 and played out with such devastating effects was not attributable to that pause in trend. If so, then the flat out decline that occurred in 2009 and 2010 should have led to an even more devastating downturn, but it has not been so.

Instead of considering this data as a highly correlated predictor of market movement, economists use it as an input along with other factors to model market behavior and trends.

The Bottom Line

Money with zero maturity (MZM) measures liquid money in an economy, made up of M2 minus time deposits plus money market funds. It is a preferred metric for economists and central bankers to gauge the economy’s immediate spending ability, which signals potential inflationary pressures. MZM does not include time deposits, such as CDs, because that money is not immediately accessible to spend.

Historical data shows that while MZM provides insight into economic liquidity, it is not a direct predictor of economic trends or stock market movements. MZM should be used with other economic indicators for comprehensive analysis.