Macroeconomic policy mix, employment and inflation in a Post-Keynesian alternative to the New Consensus Model

Eckhard Hein and Engelbert Stockhammer ()

Department of Economics Working Papers from Vienna University of Economics and B.A., Department of Economics

Abstract: New Consensus Models (NCMs) have been criticised by Post-Keynesians (PKs) for a variety of reasons. The paper presents a model that synthesises several of the PK arguments. The model consists of three classes: rentiers, firms and workers. It has a short-run inflation barrier derived from distribution conflict between these classes, which is endogenous in the medium run. Distribution conflict does not only affect inflation but also income shares. On the demand side the income classes have different saving propensities. We apply a Kaleckian investment function with expected sales and internal funds as major determinants. The paper analyses short-run stability and includes medium-run endogeneity channels for the Non-Accelerating-Inflation-Rate-of-Unemployment (NAIRU): persistence mechanisms in the labour market, adaptive wage and profit aspirations, investment in capital stock and cost effects of interest rate changes. The model is used to analyse NCM and PK policy assignments and policy rules. We argue that improved employment without increasing inflation will be possible, if macroeconomic policies are coordinated along the following lines: The central bank targets distribution, wage bargaining parties target inflation and fiscal policies are applied for short- and medium-run real stabilisation purposes.

JEL-codes: E12 E20 E52 E61 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-pke
Date: Written 2007-10
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