The Relationship between Price Stability and Output Growth within the Inflation Policy Framework

Abstract

Price stability is widely recognized as a fundamental objective of macroeconomic policy because stable and predictable inflation supports investment, consumption, and long-term economic planning. Many central banks adopt inflation targeting frameworks to maintain low and stable inflation while promoting sustainable economic growth. However, the relationship between inflation control and output growth remains a subject of debate in economic literature because empirical evidence suggests that the relationship is nonlinear and context dependent. This study aims to analyze the relationship between price stability and output growth within the framework of inflation targeting policy. This research employs a qualitative descriptive approach using a systematic literature review of scholarly publications related to inflation targeting, price stability, and economic growth. Data were collected from peer-reviewed academic journals and macroeconomic studies and analyzed using thematic analysis and conceptual synthesis to identify patterns and mechanisms linking inflation control with output dynamics. The results show that price stability contributes to macroeconomic stability by reducing uncertainty and encouraging investment and production activities. However, the impact of inflation on output growth varies depending on inflation levels and policy responses. Moderate inflation may have neutral or slightly positive effects on economic activity, while high and volatile inflation tends to reduce long-term growth. Additionally, overly restrictive monetary policies aimed at controlling inflation may temporarily suppress economic output. In conclusion, the relationship between price stability and output growth is nonlinear, indicating the need for flexible and coordinated macroeconomic policies that balance inflation control with sustainable economic growth.