An alternative model to the open-economy “new consensus” for the analysis of inflation targeting

In this paper we will discuss a demand-led growth model which is constrained by economic policy. In this way, we will incorporate an inflation targeting regime in the sraffian supermultiplier model in order to analyze how economic policy can influence the growth rate of productive capacity. We will analyze an open-economy were inflation is a cost-push phenomenon and the monetary authority can manage the nominal exchange rate through changes in interest rate differentials. As functional income distribution will depend on the evolution of nominal wages, exchange rate and interest rate, we will show that inflation target system, in addition of not being neutral in terms of long run growth, also can lead to different outcomes in terms of functional income distribution.