The role of the Taylor principle in the neo-Kaleckian model when applied to an endogenous market structure

• The Taylor Principle destabilizes the system with free entry.
• A rule of constant nominal interest rate is plausible for stable.
• Combination between monetary policy and growth regime are important elements.
• An income distribution in favour of workers has positive effect on the growth rate.

This study examines the effect of using the neo-Kaleckian model to target inflation. Here, we assume the following: a model with monopolistic competition, a symmetric economy, the inflation conflict theory and the target profit share of firms depends on the number of firms and free entry. Using the neo-Kaleckian model, we find the Taylor principle destabilizes the system, which means that an inelastic nominal interest monetary policy is a plausible way to ensure stability. In addition, we find that the Taylor principle is not compatible with the standard neo-Kaleckian results, including the effects of independent demand and income distribution in favour of workers.