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Inflationary Inertia as a Result of Unfulfilled Aspirations

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  • Nicolas M. Burotto

    (Universidad Andres Bello)

Abstract

I develop a discrete-time Keynesian D/Z model in which inflationary inertia arises from distributional conflict between firms and workers. The mechanism centers on aspiration gaps—the divergence between actual real wages and income targets—which, when combined with strong bargaining power, generate persistent inflation even after conventional macroeconomic gaps close. The model shows that equilibrium in real wages does not guarantee distributional balance, and that market mechanisms alone cannot restore stability. This underscores the need for a "social consensus" that moderates aspiration dynamics and defuses conflict-driven inflationary pressures.

Suggested Citation

  • Nicolas M. Burotto, 2025. "Inflationary Inertia as a Result of Unfulfilled Aspirations," Working Papers Series inetwp235, Institute for New Economic Thinking.
    • Handle: RePEc:thk:wpaper:inetwp235
    DOI: 10.36687/inetwp235
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    Keywords

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    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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