Daniel L. Thornton analyzes the Federal Reserve’s operating procedure as a method for controlling the money stock or the federal funds rate. Thornton demonstrates that the borrowed reserves operating procedure is not an effective method for controlling the money stock. Indeed, he shows that an interest rate targeting procedure would be more effective in controlling money. Furthermore, he shows that the borrowed reserves operating procedure is an effective method of controlling interest rates in the short run only when the variation in borrowing is due solely to shifts in the demand for total reserves; in the long run, it is an effective method of controlling interest rates only when the borrowings function is stable. Thornton also investigates the use of the borrowing functions since October 1982. His evidence suggests that the borrowings operating procedure has been used to offset the effect of permanent shifts in borrowings on the federal funds rate.