What is driving the money stock here
Money stock
M2 is currency plus transaction and on-call savings deposits. M3 adds term deposits.
The base, not the money
is what the central bank pays with. It is not what banks lend.
Money multiplier
M2 per dollar of base — the . It collapses when reserves surge.
What actually moved M2
Decomposition of every dollar of M2 created over the whole window, using the identity built into the model.
What the bank credit is made of
Outstanding lending by borrower, stacked to total bank credit — the asset that creates the deposits in the first place.
Rates
Policy rate, the lending rate it drives, and what savers are offered.
Growth rates
Twelve-month growth in the money stock and in bank credit.
Central bank balance sheet
The asset side of asset purchases. Every dollar bought shows up here.
Balance sheets, side by side
The same accounting, as T-accounts. Scrub through the window to watch positions move.
Assumptions worth knowing
- There is no . New Zealand abolished compulsory reserves in 1985. Banks hold settlement cash to settle payments with each other, and the central bank supplies whatever is needed. So reserves are an outcome of policy operations, not a constraint that forces lending to multiply.
- Loans create deposits. Bank lending adds to deposits one-for-one; nothing is "lent out" of existing deposits. Repaying a loan destroys the deposit again.
- Who sells matters. When the central bank buys a bond from a pension fund, the seller ends up with a deposit and M2 rises. When it buys from a bank's own book, the bank swaps a bond for settlement cash and no deposit is created.
- Term deposits do not fund loans — but banks still compete for them. The intuition that a bank gathers deposits and lends them out has the arrow backwards: lending creates the deposit that funds it, and a term deposit is a liability the bank owes, not a pile of money waiting to be deployed. Banks pay up for term deposits because the alternative is dearer. Wholesale funding costs more than a term deposit, and a balance the bank fails to retain has to be replaced in that market. The premium over an on-call balance buys duration — funding that cannot leave tomorrow — which is why New Zealand's counts longer-dated retail deposits as core funding and requires a minimum share of lending to be funded that way. The deposit margin control is where this bites: the bank can shave its term deposit rate below market to save interest, but past roughly 0.7 percentage points savers move their money to non-bank assets and it has to replace those balances with wholesale borrowing at 3.81%. Push the margin up and watch M3 fall while M2 barely moves — the money was never in M2, and the cost lands on the bank's profits. Wholesale funding is the residual here, so it rises one-for-one with what leaves.
- A deficit creates no deposits directly, but it does change how much gets borrowed. Ordinary spending is covered by tax receipts; only the shortfall — the deficit — has to be financed by issuing bonds. Selling those bonds to the public swaps deposits for bonds, so the financing leg creates no money: on its own, the money stock rises only as far as the central bank buys the bonds. The model adds a slower second link. A deficit above the 1%-of-GDP baseline lifts demand, firms and households borrow against that demand, and lending creates deposits — so the deficit is worth +0.0bn of M2 in the current run, all of it arriving as bank credit rather than through the budget line itself.
- M2 here is this model's definition — currency plus transaction and on-call savings deposits. The Reserve Bank publishes several aggregates and its own M3 is broader, adding term deposits and funding from non-residents. Levels and growth rates will not match published statistics exactly, and are not meant to.
- Numbers are illustrative. The opening balance sheet is calibrated to the shape and scale of the New Zealand system around 2019, with every internal identity balancing exactly. The behavioural parameters are judgement calls, not estimates.