Demand-Led Growth Under Inflation Targeting: A Dynamic Structuralist Post Keynesian Model

Abstract

This paper presents a Structuralist-Post-Keynesian model of growth, distribution, and inflation target. The simulation results show that inflation can be on target under very different structural configurations, meaning that there is more than one growth rate consistent with a given inflation target, and the same holds for the employment rate, the labor share, and the real interest rate. The results also show that endogenous indexation sets a limit to expansionary policies because, if inflation stays too high for too long, inflation becomes rigid downwards and explosive upwards. On the other hand, contractionary policies can produce self-fulfilling slow-growth expectations.