Lower investment means lower future growth and less future income. If producers and consumers feel confident that the average price level will remain stable, they can be more certain that price changes indicate true shifts in demand and supply. Obviously a monetary policy that maintains price stability can improve the efficient functioning of markets. This promotes the full and productive employment of resources. As Alan Greenspan once stated, a monetary policy that prevents inflation from being a factor in the decision making of businesses and consumers, is a monetary policy that best promotes economic growth.
Empirical evidence shows that high inflation has a negative correlation with economic growth.
In countries where inflation is high, economic growth is normally low. Many economists are therefore convinced that inflation is undesirable and should be avoided at all costs. Recent economic research has cast some doubt on this argument. In principle, there is likely to be a reversal somewhere in the inverse relationship between inflation and growth as there are no grounds for believing that continuously declining prices, i.e. deflation, are good for growth. Another study by Barro confirmed this inverse relationship, but found that it was relatively weak.