Abstract
This paper investigates open market operations in Australia and incorporates some key features of these operations into a simple rational expectations macroeconomic model Where relevant, comparisons with US operating procedures are made. The major finding is that the Reserve Bank of Australia like the Federal Reserve uses the overnight interest rate as its policy instrument However, specific features of the Australian money market imply that direct control of the interest rate will be a more efficient policy in Australia than in the United States.
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