Coffee Cups and Cigarettes

Tomo

In macroeconomics, an open market operation (OMO) is an activity by a central bank to give (or take) liquidity in its currency to (or from) a bank or a group of banks. The central bank can either buy or sell government bonds (or other financial assets) in the open market (this is where the name was historically derived from) or, in what is now mostly the preferred solution, enter into a repo or secured lending transaction with a commercial bank: the central bank gives the money as a deposit for a defined period and synchronously takes an eligible asset as collateral. Central banks regularly use OMOs as one of their tools for implementing monetary policy. A frequent aim of open market operations is — aside from supplying commercial banks with liquidity and som… more »