Thanks to Bob Rankin, Assistant Governor of the RBA, for his assistance. Of course, any errors remain the responsibility of the authors.
Lifting the Cloud of Confusion over Monetary Policy*
Version of Record online: 1 OCT 2009
© 2009 The Economic Society of Australia
Economic Papers: A journal of applied economics and policy
Volume 28, Issue 2, pages 130–138, June 2009
How to Cite
Coombes, T. and Reimers, D. (2009), Lifting the Cloud of Confusion over Monetary Policy. Economic Papers: A journal of applied economics and policy, 28: 130–138. doi: 10.1111/j.1759-3441.2009.00016.x
- Issue online: 1 OCT 2009
- Version of Record online: 1 OCT 2009
- endogenous base money;
- cash rate determination;
- contemporary monetary policy
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.