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Inside Debt and the Stability of Inflation

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  • Thomas I Palley

    (New America Foundation, Washington, DC, USA.)

Abstract

This paper uses Tobin's [1975] model of deflation to analyze inflation. Stability of the inflation process depends on the strength of the Tobin–Mundell effect. The paper introduces the concept of expenditure acceleration effects, which are the Keynesian analog of increased velocity of money. It also includes inside debt, which increases the likelihood of inflation being unstable. The paper further expands Tobin's model and incorporates borrowing, debt repayment, and endogenous money. Flow borrowing effects on spending are destabilizing, as is endogenous money. Debt stock adjustment effects are stabilizing. Lastly, the paper discusses the monetary policy implications of high levels of inside debt.

Suggested Citation

  • Thomas I Palley, 2011. "Inside Debt and the Stability of Inflation," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 37(4), pages 488-507.
    • Handle: RePEc:pal:easeco:v:37:y:2011:i:4:p:488-507
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    Cited by:

    1. Michael Assous, 2013. "Irving Fisher's debt deflation analysis: From the Purchasing Power of Money (1911) to the Debt-deflation Theory of the Great Depression (1933)," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 20(2), pages 305-322, April.
    2. Thomas I. Palley, 2012. "A neo-Kaleckian - Goodwin model of capitalist economic growth: Monopoly power,managerial pay, labor market conflict, and endogenous technical progress," IMK Working Paper 105-2012, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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