Article ID Journal Published Year Pages File Type
7358527 Journal of Economic Dynamics and Control 2018 34 Pages PDF
Abstract
In this paper, we analyze the impact of inflation-deflation expectations and the effect of the monetary authority's inflation-targeting policy in a Kaleckian system, on the basis of macro-foundation approaches. For this purpose, we build a dynamical system composed of four variables (the rate of utilization, the wage share, the nominal rate of interest and the expected rate of inflation) and examine the properties, especially stability, of this dynamical system. We then find that the existence of (adaptive) inflation-deflation expectations always destabilizes our Kaleckian system (irrespective of the revision speed of expectations) while that the monetary authority's intensive inflation-targeting policy can make the system stable but the effect of this policy depends heavily upon the public credibility of it. We also perform numerical simulations to check that our analysis is valid.
Related Topics
Physical Sciences and Engineering Mathematics Control and Optimization
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