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.

This paper considers the nature and role of monetary policy when money is modelled as credit money endogenously created within the private sector. There are currently two schools of thought that view money as endogenous: one has been labelled the ‘new consensus’ in macroeconomics, and the other is the Keynesian endogenous (bank) money approach. The paper first explores the analysis of monetary policy in the ‘new consensus’ macroeconomic model, followed by an examination of the effectiveness of monetary policy in that analysis. The Keynesian view of endogenous money is discussed, and the role for monetary policy in a Keynesian endogenous monetary policy analysis is considered, including discussion of the objectives and instruments of monetary policy.