Suppose, for example, that a central bank attempted to set the interest rate at a low level which imparted a strong stimulus to demand and 3  The technical way of describing the weakness of permanently fixing the interest rate is to say that it is an unstable rule because it leads to indeterminacy of the price level.
This point has been appreciated at least as far back as Henry Thornton (1802) who analysed the inflationary consequences of the fixed interest rate policy then favoured by the Bank of England. 2  BIS Review 77/2001  activity.