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A missing element in the empirical post Keynesian theory of inflation—total credits to households: A first-differenced VAR approach to U.S. inflation

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  • Hongkil Kim

Abstract

This paper analyzes U.S. inflation since the early 1980s, using the post Keynesian theory of inflation. Our empirical model that contains both supply- and demand-side variables is run over the total sample and the recent subsample after we notice a structural break in 2000Q3. The empirical results of the generalized impulse response analysis based on the estimated vector autoregression suggests that supply-side variables are significant in explaining U.S. inflation regardless of time, whereas the demand-side variable, the excess credit creation/depletion of households, is only crucial in the recent period. It demonstrates a missing element in the empirical post Keynesian theory of inflation. Furthermore, it is found that current monetary policy tools of maneuvering target interest rates and controlling monetary supply is not effective to their policy goals toward price stability.

Suggested Citation

  • Hongkil Kim, 2020. "A missing element in the empirical post Keynesian theory of inflation—total credits to households: A first-differenced VAR approach to U.S. inflation," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 43(4), pages 640-656, October.
    • Handle: RePEc:mes:postke:v:43:y:2020:i:4:p:640-656
    DOI: 10.1080/01603477.2019.1672559
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    Cited by:

    1. Lucia Mandongwe & Stanley Murairwa & Phamela Dube, 2022. "A Theoretical Assessment of the Operational Budgets in Hyperinflation Countries, Lessons from Boarding Schools in Zimbabwe: Effects and Survival Strategies," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 6(6), pages 669-677, June.

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