In October 1979 the Federal Reserve shifted from an interest rate oriented operating procedure to a reserves oriented procedure. It is argued in this paper that part of the very large increase in interest rate volatility which resulted from the policy switch may have been due to shifts in the...

The altered allocations of money market volatility obtained by alternative monetary policy procedures are illustrated by stochastic simulations of a staff monthly model.The results indicate the nature of the tradeoff between short-run volatility in the money stock and in the funds rate that is...