Stern said other drivers of economic growth, such as using interest rates, tax changes and structural reforms, had limited potential.
The Bank of England used to assume that in the short-run productivity was closely linked to demand, which the bank steers using interest rates.
In the wake of the financial crisis, there is a growing desire to look beyond using interest rates to influence price stability.
"But the bank is not in charge of structural policy, and anyway, using interest rates to influence structural reform is sort of like using a hammer to hit a screw".
But the bank's efforts to contain inflation using interest rates that are among the highest in the world are increasingly viewed as radical medicine for an economy that has stagnated much of the last two years.
And using interest rates to promote financial stability means that inflation-targeting central banks may well deviate from their inflation targets for longer periods (for instance, if asset prices are soaring but consumer prices are stable).
'He's hopping from one bubble to another,' says Ravi Batra, author of Greenspan's Fraud, who blames him not only for allowing speculative bubbles to develop in equities and then housing, but for using interest rates to stamp on the wage gains of poorer households in a misguided fear that inflation was about to take off.
"Quantitative easing" has become such a familiar phrase over the past three years that it now seems like a standard part of the Bank of England's equipment – giving the "one club golfer", as Ted Heath once dubbed anyone trying to guide the economy using interest rates alone, one more club.
Not only does a fixed rate prevent a central bank from using interest rates to prevent an economy from overheating (because higher interest rates would push up the value of the currency), but it also encourages too much foreign-currency borrowing when foreign interest rates are lower than local ones.
When using interest rates that are written out as a percentage (such as "5 percent") be sure to convert the rate into a decimal before making any calculations by dividing the whole number by 100 (5 divided by 100 = 0.05).
