Macroeconomic Policy Mix, Employment and Inflation in a Post-Keynesian Alternative to the New Consensus Model

New Consensus Models (NCMs) have been criticised by Post-Keynesians for a variety of reasons, and amendments or alternatives have been presented. The present paper attempts to provide a Post-Keynesian alternative model to the NCM. The model consists of three classes: rentiers, firms and workers. It has a short-run inflation barrier derived from distribution conflict between these classes, which is endogenous in the medium run. Distribution conflict affects not only inflation but also income shares. On the demand side, the income classes have different saving propensities. We apply a Kaleckian investment function with expected sales and internal funds as major determinants. The paper analyses short-run stability and includes medium-run endogeneity channels for the Non-Accelerating-Inflation-Rate-of-Unemployment, or NAIRU: persistence mechanisms in the labour market, adaptive wage and profit aspirations, investment in capital stock and cost effects of interest rate changes. From the model, Post-Keynesian policy rules are derived. We argue that improved employment without increasing inflation will be possible if macroeconomic policies are coordinated along the following lines: the central bank targets distribution, wage bargaining parties target inflation and fiscal policies are applied for short- and medium-run real stabilisation purposes.