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Inflation targeting in a simple macroeconomic model

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  • H. SONMEZ ATESOGLU
  • JOHN SMITHIN

Abstract

In this paper, we argue that an explicit inflation-targeting policy is not likely to be a desirable monetary policy rule, even if it were agreed that a lower inflation rate is an important goal of policy. Inflation targeting is not neutral in the short or the long run, and a strict policy will tend to reduce the equilibrium growth rate. In terms of income distribution, a lower inflation target will tend to reduce real wages and profits and increase real interest rates, that is, the return to rentiers. In certain circumstances, it may still be possible to achieve a combination of both higher growth and lower inflation using other types of policy. However, this would actually require lower real interest rates, rather than the higher rates that are traditionally associated with anti-inflation policy.

Suggested Citation

  • H. Sonmez Atesoglu & John Smithin, 2006. "Inflation targeting in a simple macroeconomic model," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 28(4), pages 673-688.
  • Handle: RePEc:mes:postke:v:28:y:2006:i:4:p:673-688 DOI: 10.2753/PKE0160-3477280408
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    Cited by:

    1. Eckhard Hein & Engelbert Stockhammer, 2010. "Macroeconomic Policy Mix, Employment and Inflation in a Post-Keynesian Alternative to the New Consensus Model," Review of Political Economy, Taylor & Francis Journals, pages 317-354.
    2. Angel Asensio, 2012. "Between the Cup and the Lip: On Post Keynesian Interest Rate Rules and Long-term Interest Rate Management," Chapters,in: Monetary Policy and Central Banking, chapter 1 Edward Elgar Publishing.
    3. Eckhard Hein & Christian Schoder, 2011. "Interest rates, distribution and capital accumulation -- A post-Kaleckian perspective on the US and Germany," International Review of Applied Economics, Taylor & Francis Journals, pages 693-723.
    4. Vasiliki Bozani, 2011. "NAIRU, Unemployment and Post Keynesian Economics," Working Papers 1104, University of Crete, Department of Economics.
    5. Elisabetta Michetti, & Domenica Tropeano,, 2008. "Exchange rate policy and income distribution in an open developing economy," Working Papers 44-2008, Macerata University, Department of Finance and Economic Sciences, revised Nov 2008.
    6. Eckhard Hein & Christian Schoder, 2011. "Interest rates, distribution and capital accumulation -- A post-Kaleckian perspective on the US and Germany," International Review of Applied Economics, Taylor & Francis Journals, pages 693-723.
    7. Chaido Dritsaki, 2016. "Real wages, inflation, and labor productivity: Evidences from Bulgaria and Romania," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 4(5), pages 24-36, October.
    8. Hein, Eckhard, 2016. "Post-Keynesian macroeconomics since the mid-1990s: Main developments," IPE Working Papers 75/2016, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    9. Eckhard Hein, 2017. "Post-Keynesian macroeconomics since the mid-1990s - main developments," FMM Working Paper 01-2017, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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