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Inflation-deflation expectations and economic stability in a Kaleckian system

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  • Murakami, Hiroki
  • Asada, Toichiro

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.

Suggested Citation

  • Murakami, Hiroki & Asada, Toichiro, 2018. "Inflation-deflation expectations and economic stability in a Kaleckian system," Journal of Economic Dynamics and Control, Elsevier, vol. 92(C), pages 183-201.
    • Handle: RePEc:eee:dyncon:v:92:y:2018:i:c:p:183-201
    DOI: 10.1016/j.jedc.2017.11.004
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    Cited by:

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    3. Hiroki Murakami, 2019. "A note on the “unique” business cycle in the Keynesian theory," Metroeconomica, Wiley Blackwell, vol. 70(3), pages 384-404, July.
    4. Nishi, Hiroshi, 2020. "A two-sector Kaleckian model of growth and distribution with endogenous productivity dynamics," Economic Modelling, Elsevier, vol. 88(C), pages 223-243.
    5. Murakami, Hiroki, 2020. "Monetary policy in the unique growth cycle of post Keynesian systems," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 39-49.
    6. Nishi, Hiroshi & Stockhammer, Engelbert, 2020. "Distribution shocks in a Kaleckian model with hysteresis and monetary policy," Economic Modelling, Elsevier, vol. 90(C), pages 465-479.
    7. Hiroki Murakami, 2022. "Keynesian and classical theories: static and dynamic perspectives," Evolutionary and Institutional Economics Review, Springer, vol. 19(1), pages 343-367, April.
    8. Murakami, Hiroki & Zimka, Rudolf, 2020. "On dynamics in a two-sector Keynesian model of business cycles," Chaos, Solitons & Fractals, Elsevier, vol. 130(C).
    9. Toshio Watanabe, 2023. "Financial dynamics in the medium run," Metroeconomica, Wiley Blackwell, vol. 74(3), pages 632-656, July.

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    More about this item

    Keywords

    Kaleckian economics; Economic stability; Inflation-deflation expectations; Inflation-targeting policy;
    All these keywords.

    JEL classification:

    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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