On Modeling Monetary Policy Implementation

This paper studies three types of monetary policy interventions: open market operations (OMO), standing facilities (SF), and lump-sum transfers (LST). Without financial frictions, only money growth rate – and not the specific monetary interventions – matters. Both SF and OMO can be used in two different ways. With SF, for example, the central bank can either lend more tomorrow than today or keep borrowing and use the interest payment to expand the money supply. The Friedman rule can be implemented by the first way but not the second way.