Open Market Operations

Open Market Operations

The buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. Purchases inject money into the banking system and stimulate growth while sales of securities do the opposite.

Notes:

Open market operations are the principal tools of monetary policy. (The discount rate and reserve requirements are also used.) The U.S. Federal Reserve's goal in using this technique is to adjust the federal funds rate--the rate at which banks borrow reserves from each other.

See also: Alan Greenspan, Discount Rate, Federal Funds Rate, Federal Reserve Bank, Federal Reserve Open Market Committee (FOMC), Federal Reserve Board (FRB), Interest Rate, Monetary Policy, Reserve Requirements