Inflation-deflation expectations and economic stability in a Kaleckian system

Hiroki Murakami () and Toichiro Asada

Journal of Economic Dynamics and Control, 2018, vol. 92, issue C, 183-201

Abstract: In this paper, we analyze the impact of inflation-deflation expectations and the effect of the monetary authority’s inflation-targeting policy in a Kaleckian system, on the basis of macro-foundation approaches. For this purpose, we build a dynamical system composed of four variables (the rate of utilization, the wage share, the nominal rate of interest and the expected rate of inflation) and examine the properties, especially stability, of this dynamical system. We then find that the existence of (adaptive) inflation-deflation expectations always destabilizes our Kaleckian system (irrespective of the revision speed of expectations) while that the monetary authority’s intensive inflation-targeting policy can make the system stable but the effect of this policy depends heavily upon the public credibility of it. We also perform numerical simulations to check that our analysis is valid.

Keywords: Kaleckian economics; Economic stability; Inflation-deflation expectations; Inflation-targeting policy (search for similar items in EconPapers)
JEL-codes: E11 E12 E32 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:92:y:2018:i:c:p:183-201

DOI: 10.1016/j.jedc.2017.11.004

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