The best stabilization policy is the one that brings the least volatile output. If the
economy is at its full-employment level of output, the best policy is the one that
creates smallest deviations around the full-employment level of output. If all the
shocks are the IS shocks, then the policy of keeping the interest rate constant will
bring the largest deviations from the full employment level of output. Thus, in this
case, it is inferior to the policy of keeping the nominal money stock constant and
letting the interest rate to adjust.