Monetary Tightening without Disinflation: A Post-Keynesian Account of Cost-Push Pressures, Mark-Up Dynamics, and Conflict Inflation

This paper examines why sustained monetary tightening can coexist with slow disinflation and persistent inflationary pressures. Focusing on the Euro Area over the period 1999Q1–2024Q4, the analysis develops and tests a post-Keynesian explanation centered on administered pricing, endogenous mark-up setting, and distributional conflict. In contrast to demand-driven Phillips-curve interpretations, inflation is modeled as the outcome of cost propagation, profit-claim dynamics, and monetary policy operating through both demand and costs. Using a panel error-correction framework, the empirical results show that energy and import prices are the dominant drivers of inflation, while profit-share measures remain statistically significant even after controlling for costs. The policy interest rate plays a limited role in anchoring inflation in the long run. Moreover, a regime-based interaction reveals that during sustained tightening cycles, policy-rate increases are associated with weaker disinflation dynamics and, in the short run, mildly inflationary effects once cost and mark-up channels are accounted for. These findings support the notion of “monetary tightening without disinflation” as an endogenous outcome of administered pricing and distributional conflict, rather than as evidence of insufficient policy restrictiveness. The results suggest that when inflation is predominantly cost- and conflict-driven, effective stabilization requires complementary policy tools beyond interest-rate hikes. JEL Classification: E31, E52, E58, D33, L11