The Relevance of Open Market Operations as a Monetary Policy Tool.

The role of open market operations - exchanges of different classes of government liabilities between the government and private sector - are considered in an oft-studied dynamic equilibrium model with money. Open market operation-financed changes in the money supply may have different consequences than lump-sum-transfer-financed money supply changes. This study confirms and extends Wallace's (1989) finding that open market operations need not be neutral even when lump-sum monetary transfers would be neutral when other model features are held constant.