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Lifting the Cloud of Confusion over Monetary Policy

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  • Trevor Coombes
  • David Reimers

Abstract

There is no doubt that the Reserve Bank of Australia (RBA) controls base money, but this paper shows that the RBA does not, and has no need to, target base money in order to re‐set the cash rate. The money supply in Australia, including base money, is endogenous. Conceiving base money as an instrument of policy confuses normal smoothing operations with a change in stance.

Suggested Citation

  • Trevor Coombes & David Reimers, 2009. "Lifting the Cloud of Confusion over Monetary Policy," Economic Papers, The Economic Society of Australia, vol. 28(2), pages 130-138, June.
    • Handle: RePEc:bla:econpa:v:28:y:2009:i:2:p:130-138
    DOI: 10.1111/j.1759-3441.2009.00016.x
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    References listed on IDEAS

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    1. Glenn Otto, 2007. "Central Bank Operating Procedures: How the RBA Achieves Its Target for the Cash Rate," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 40(2), pages 216-224, June.
    2. Trevor Coombes, 2008. "An Approach To Teaching Monetary Policy Since Deregulation," Economic Papers, The Economic Society of Australia, vol. 27(4), pages 355-363, December.
    3. Michael Woodford, 2001. "Monetary policy in the information economy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 297-370.
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