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Are large national debt and ultra-low inflation harmful? —— S-shape Phillips curve: the inflation-unemployment relationship of a low profit rate model

Yang, Jinrui (2020): Are large national debt and ultra-low inflation harmful? —— S-shape Phillips curve: the inflation-unemployment relationship of a low profit rate model.

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Abstract

This paper, through a neo-Kaleckian model of a closed industrialized economy, shows a large scale of national debt and an ultra-low inflation rate are not dangerous but necessary if the profit rate of capitalists is low. The S-shape Phillips curve in the static analyses (in the long-run perspective then) shows, when inflation rate is low (which is called semi-classical situation), unemployment rate increases with inflation rate. In the semi-classical situation, the ratio of national debt to GDP decreases with inflation rate while deficit ratio increases with inflation rate. The dynamic analyses show, if the government can fix inflation rate on a target level, an industrialized economy can be dynamically stable.

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