Functional Distribution of Income, Floating Exchange Rates and Inflation Targets in a Macrodynamic Model

This article presents a post-Keynesian macrodynamic model for a small open economy, with floating exchange rates and inflation targeting regime. It models, mathematically, an economy with distributive conflict, technological progress and labor supply as endogenous from different theoretical strands. Moreover, investment decisions are based on the differential between the rate of profit and the interest rate. The effects of opening the capital account on the inflation rate, the interest rate and the employment growth rate depend on the income distribution prevailing in the economy. In the long run, the model presents multiple equilibrium in two different accumulation regimes: 1) profit led and 2) wage led.