Such an interpretation of cyclical swings is, of course, in the Keynesian tradition: output is demand determined in the short run (reflecting price stickiness) and swings in output are dominated by autonomous changes in aggregate demand. How should monetary policy respond to cyclical swings in demand? Should monetary policy hold short-term interest rates constant, in effect imposing a horizontal LM curve?
In order to do so, it would, in general, have to respond to rightward shifts in the IS curve by adding reserves and facilitating faster money growth, so as to prevent interest rates from rising.