The Role of Inflation Rate on the Dynamics of an Extended Kaldor Model 1 Jan Kodera, Karel Sladk´ y, Miloslav Voˇ svrda Department of Econometrics Institute of Information Theory and Automation Academy of Sciences of the Czech Republic Abstract. This contribution is devoted to the dynamics of an extended Kaldor model. Attention is focused primarily on the influence of inflation rate on the limiting behaviour, sta- bility and robustness of the model. Both the analytical approach and computer modelling are discussed. Two illustrative examples are supplied. JEL Classification: C061, E012 1 Introduction – the Static IS-LM Model The IS-LM model is a macroeconomic model describing conditions for the equilibrium between the commodity market and the money market. In a neo-Keynesian model, the commodity market is described by the so-called IS Model (Investment–Saving Model), i.e. by means of the functions of savings S and investments I. The savings S (Y,R) are assumed to be an increasing function of the real product Y and the nominal interest rate R. Similarly, the investments I (Y,R) are again an increasing function of the real product Y , but a decreasing function of the nominal interest rate R. Considering a static IS model, we are looking for an equilibrium point, say (Y ? ,R ? ) given by the equation S (Y,R)= I (Y,R), (1.1) i.e. for the equilibrium point we have S (Y ? ,R ? )= I (Y ? ,R ? ). Similarly, the money market is described by the so-called LM Model (Liquidity–Money Model); in particular, the nominal supply of money M S must be equal to the nominal de- mand for money L. In a Keynesian model we assume that the nominal demand for money depends only on the real product Y and the nominal interest rate R. The equilibrium in the money market is then given by M s = L(Y,R), (1.2) i.e. for the equilibrium point (Y ? ,R ? ) we have M s = L(Y ? ,R ? ). Unfortunately, the static model yields no information about the development of the considered macroeconomic system over time, e.g. no information is available about the speed of adjustment to the equilibrium point, and only the nominal inflation is taken into account. 1 This research was supported by the Grant Agency of the Academy of Sciences of the Czech Republic under Grant A7075202 and by the Grant Agency of the Czech Republic under Grant 402/01/0034.