Lifting the Cloud of Confusion over Monetary Policy*

Trevor Coombes and David Reimers

Economic Papers, 2009, vol. 28, issue 2, pages 130-138

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. Copyright (c) 2009 The Economic Society of Australia.

Date: 2009

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