Demand-shift model of inflation

AN INCOME-DISTRIBUTION DEMAND-SHIFT MODEL OF INFLATION... 

The spiraling process of stagflation, in our model, is brought about by a demand-shift inflation between two well defined markets (L, B) linked to a systematic income redistribution by inflation between two well defined income groups (g, w). The demand whose structure changes, the income which is redistributed and the markets which are effected are macroeconomic magnitudes. It is a model of demand shift inflation sustained through the feedback effect of the income redistribution on the structure of demand. This kind of inflation not only can, but necessarily does coexist with unemployment. 

The model presented here is a model of demand-shift inflation where the shift in the existing demand structure results from the income distribution caused by inflation itself Inflation is defined as a continuous rise in the price level. We concentrate on the analysis of an ongoing inflation and not on its initial cause. The first jump in the price level might occur because of an exogenous shock to the system, a shock to which inflation is often related, but according to the model the observed continuing inflationary process is endogenous to... 

Our results were obtained by linking the income redistribution by inflation with demand-shift inflation in a systematic way in a macroeconomic model through the disaggregation of aggregate demand. This way the, so far overlooked effects of the income redistribution by inflation appear as decisive economic factors in the determination of the price level and of the level of employment. 

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