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Regular version of the site

Article

Stagflation in the Inside Money Economy: the Post Keynesian Perspective

Economic Herald of the Donbas. 2012. No. 4(30). P. 5-11.

The paper contains attempt to develop theory which try to explain – in the Post Keynesian “spirit” – why can stagflation be inherent in the modern market advanced economy. The treatment of such economy as the “inside money economy” is very important. The author shows that stagflation is the inevitable feature of any recession in the inside money economy, when price-controlling firms try to avoid immediately the bankruptcies in the conditions of a “debt crisis", higher and/or rising interest rates and decrease in the aggregate demand. In other words, a recession in such economy is always a stagflation. The paper also shows that cyclical expansion together with redemption of debts by some firms and the bankruptcies of other firms can deliver the economy from stagflation, but only until the beginning of a next recession. All this reasoning can be very important in the current period of the 2007 – 2012 Global Financial Crisis.