Brian Romanchuk — Primer: Post-Keynesian Inflation Theory Basics

This article is an introduction to the post-Keynesian approach to inflation. It is largely based on Section 8.1.1 of Professor Marc Lavoie's Post-Keynesian Economics: New Foundations (link to my review). Similar to the piece of job on stock-flow consistent models, nosotros initiative off out amongst what is essentially an accounting identity: a contention that is truthful past times definition. We demand to empathize the implications of the accounting identity before nosotros worry near the behavioural aspects (which are non pinned downward amongst accounting).

(The approach hither is quite distinct from conventional approaches; I discussed why post-Keynesians spend upwards conventional inflation theory inwards an before article.)…

The world conversation is moving away from so-called audio finance toward functional finance, the struggle is shifting to actual fiscal in addition to macroeconomic constraints rather than non-existent funding constraints similar the "budget constraint." So it is becoming of import to empathize the details of the actual constraints — existent resources in addition to cost stability. As a consequence, it is also necessary to empathize the issues involving prices stability, similar "inflation."

In my view, it would last improve to only drib the term "inflation" equally also charged amongst pejorative connotation inwards ordinary linguistic communication to serve equally a technical term inwards macroeconomics. "Price level" in addition to "price stability" are to a greater extent than accurate, since policy must last concerned amongst both continuous increase in addition to also decrease inwards the cost degree inwards a monetary production economy, e.g., owing to prior commitments involving debt, for example. Debt deflation is equally poisonous equally inflation of the of the cost level. Price stability is also needed for planning, since it involves frontward legal commitments, e.g., contracts.

Bond Economics
Primer: Post-Keynesian Inflation Theory Basics
Brian Romanchuk