The Taylor rule as a stabilizing mechanism in Foley’s supply-side liquidity–profit rate model

The stabilizing potential of inflation-targeting regimes is well established in Keynesian models, from Setterfield’s theoretical contributions to the Keynes-Metzler-Goodwin-Taylor (KMGT) framework, but their role within Classical-Marxian business-cycle theory remains underexplored. Duménil and Lévy showed that monetary policy can stabilize a Classical model, yet without a canonical Taylor rule. This paper fills that gap by integrating a Taylor-type rule into Foley’s model of liquidity–profit rate cycles. The resulting Foley-Taylor model, with its parsimonious three-dimensional structure, permits a full analytical stability analysis, yielding tractable parameter conditions that, in larger systems such as the KMGT, can only be obtained numerically. The results reveal the presence of damped oscillations, indicating that the system’s equilibrium is asymptotically stable and resists divergence into a limit cycle. The model also engages with the Minskyan literature on real–financial linkages, but shifts the focus toward the containment of instability already present in Foley’s framework and its extensions. By showing that such a policy can tame the cycles in a Foley-type model, our analysis demonstrates that the stabilizing capacity of a Taylor rule, well-documented in Post-Keynesian (PK) models, is also robust within a Classical-Marxian framework.