Aggregate Demand, Conflict and Capacity in the Inflationary Process

Posted: 29 Feb 2008

See all articles by Philip Arestis

Philip Arestis

University of Cambridge - Department of Land Economy; Universidad del País Vasco (UPV/EHU)

Malcolm Sawyer

University of Cambridge; University of Leeds

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Abstract

This paper focuses on an alternative perspective on inflation to that of the non-accelerating inflation rate of unemployment (NAIRU). It indicates that there are no automatic forces leading to a level of aggregate demand consistent with constant inflation. Inflationary pressures arise from conflict over income shares, and from cost elements, with the price of raw materials, especially oil, being the most important. There are supply-side factors impinging on the inflationary process, which arise from the level of productive capacity (relative to aggregate demand). The supply-side constraints are viewed as arising from capacity constraints, rather than from the operation of the labour market.

Keywords: Capacity, Conflict, Aggregate demand, Inflation

Suggested Citation

Arestis, Philip and Sawyer, Malcolm, Aggregate Demand, Conflict and Capacity in the Inflationary Process. Cambridge Journal of Economics, Vol. 29, Issue 6, pp. 959-974, 2005. Available at SSRN: https://ssrn.com/abstract=904519

Philip Arestis (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Universidad del País Vasco (UPV/EHU)

Barrio Sarriena s/n
Leioa, Bizkaia 48940
Spain

Malcolm Sawyer

University of Cambridge

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

University of Leeds

Leeds, LS2 9JT
United Kingdom

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