Modern monetary theory and definitions of money supply

Lets introduce two of the core definitions of modern monetary theory:

1. M0 (also known as the monetary base or high-powered money), which is equal to the total liabilities of the central bank, i.e., cash + the reserves of private sector banks on deposit at the central bank;
2. M1 (also known as narrow money), which is equal to cash in circulation + demand or ‘sight’ deposits.

Definitions of money supply have a somewhat arbitrary quality. Some measures of M1 include travellers’ cheques in the total. M2 adds savings accounts, money market deposit accounts and certificates of deposit. M3 is broader still, including eurodollar deposits held in offshore markets, and repurchase agreements between banks and other financial intermediaries.