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.
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.
A variable rate tender is an auction procedure generally used as part of the Eurosystem’s open market operations. In a variable rate tender, the Eurosystem defines in advance how much central bank money (liquidity) it is prepared to provide to the banking system as part of the auction. The banks participating in the auction submit their bids for both the amount of central bank money that they are willing to transact as well as the interest rate at which they wish to carry out the transaction. As in a regular auction, the highest bidder receives the first allotment – until the entire amount that the Eurosystem has provided is distributed among the highest bidders. The lowest interest rate at which liquidity is allotted is called the marginal interest rate. As an alternative to the variable rate tender, the Eurosystem can also issue fixed rate tenders.
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.
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.