We compare open loop versus closed loop identification when the identified model is used for control design, and when the system itself belongs to the model class, so that only variance errors are relevant. Our measure of controller performance (which is used as our design criterion for identification) is the variance of the error between the output of the ideal closed loop system (with the ideal controller) and that of the actual closed loop system (with the controller computed from the identified model). Under those conditions, we show that, when the controller is a smooth function of the input-output dynamics and the disturbance spectrum, the best controller performance is achieved by performing the identification in closed loop with an operating controller that we characterize. For minimum variance and model reference control design cirteria, we show that this ’optimal operating controller for identification’ is the ideal controller. This then leads to a suboptimal but feasible iterative scheme.