Glossary
What will I find in this section?
Technical terms, unfortunately, cannot always be avoided – particularly when it comes to complex topics such as monetary policy. This is why we have compiled a glossary with a wide range of terms, arranged in alphabetical order and each with a short explanation.
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In accounting, the term value adjustment generally describes the adjustment of a balance sheet item’s carrying amount to reflect its actual value; for banks these are, above all, write-downs on loans which are deemed either wholly or partly unrecoverable.
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Central banks use tender procedures to supply the banking system with central bank money, whereby they can choose between a variable or a fixed rate tender procedure. In a variable rate tender, the Eurosystem specifies in advance how much central bank money (“liquidity”) it wishes to provide to the banking system. The banks participating in the tender then bid on the amount of central bank money they wish to transact at what interest rate. The central bank can specify a minimum rate of interest (known as the minimum bid rate). As in an auction, the highest bids are accepted first. The pre-determined amount of central bank money is consequently allocated starting with those bidders that have offered the highest interest rates, until the total amount has been reached. Up until the autumn of 2008, the Eurosystem used variable rate tenders for its refinancing operations. It subsequently switched to fixed rate tenders with full allotment.
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The velocity of circulation of money gives information on how often on average a monetary unit is used to pay for goods per period. In quantitative terms, it describes the ratio of nominal gross domestic product (or another variable that measures the aggregate turnover of goods) to a monetary aggregate – usually M1 or M3. Besides payment habits and technical advances in payment systems, the level of the velocity of circulation is influenced above all by the interest rate situation.
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The term "volatility" describes the extent to which a value experiences short-term fluctuations from the trend. It is measured by calculating the standard deviation (a statistical measure for the average dispersion of actual values from the mean). For securities, volatility is calculated as the standard deviation of yields.