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.