Models currently used for monetary policy analysis equate the monetary policy interest rate instrument to the consumption Euler rate which is related to expected consumption growth and inflation, i.e. the two variables monetary policy is designed to control. This specification however fails badly on data: both rates are negatively correlated and the policy rate co-moves negatively with the spread between these two rates. We propose a more realistic model of monetary policy, consistent with these empirical co-movements, where the central bank affects nominal spending by influencing the value of assets which the private sector directly uses to obtain means of payment for consumption via open market operations. The liquiditypremium of these assets, i.e. the spread between a standard Euler rate and their yield, varies according to how much the private sector values the transaction service they provide. In addition, our model implies a new monetary transmission mechanism and can be used to analyze the effects of changes in aggregate risk and liquidity shocks on money market interest rates and policy.