This was a great conversation that covered some big-picture issues about how an incorrect view of money changes our macroeconomic analysis, and also the finer details of monetary operations.

Find out more about the Modern Money Lab. And for those following closely, here is the document Steven refers to about the RBA buying Treasury bonds to maintain control of the interest rate. The relevant section:

"Under the TAP system there was considerable uncertainty as to whether the Government’s financing needs would be met by the financial market. The Government had the capacity to fund shortfalls by issuing Public Treasury Bills to the RBA  ...... The TAP mechanism was not sustainable with increasingly flexible interest rates. As a result, a tender system was first adopted for short-term Treasury Notes in December 1979 and for Treasury Bonds in August 1982."

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