Such transformations of these chief macroeco- nomic relationships are the key to the explanation of the endogenous nature of stagflation in the inside money economy. The domination of inside money alters economic behaviour in the phase of contraction. In this situation any adverse demand shocks (caused by the collapse of investment or consumption confidence, the rise in the liquidity preference, the increase in the thriftiness, the share prices crash etc.) not only generate the decrease in output, but also become the reason for the price level rise. It means that the inevitable (during the slump) negative demand shocks automatically lead to stagflation. In this fashion the stagflation is inherent to the inside money economy. It takes place without both adverse exogenous supply shocks and the government stabilization policy.

We must, however, point out that these stagfla- tionary processes are not long-lasting. After the liquidation of the debts and/or mass bankruptcies of the business firms the relationships both between the price level and aggregate demand and between the price level and aggregate supply become "normal", "orthodox". Under these "normal" relationships the endogenous sources of stagflation fade away because the necessity of the debts redemption is not already dominating factor in the behaviour of the firms and the households. If, however, the process of paying debts continues in the "post-depression" and recovery phases, some "unusual" macroeconomic relationships, possibly, matter. In this situation Fisher effect becomes less than other (Keynes, Pigou and net export) effects, but the negative relationship between aggeregate supply and the price level can persist. The business firms will decrease prices in order to induce the increase in demand, supposing that current level of that is low. The example is the US economy in the 1980s: stagflation of the 1980-82 was offset by "deflationary expansion" in the 1982-90.

In other words, the increase in aggregate demand in the "postcrash" phase removes the threat of the mass bankruptcies wave and weakens Fisher effect importance; but at the same time, the redemption of financial obligations, as before, is the big problem for many businesses. Firms try to decrease the prices and increase the output, because they aspire to provide not maximal profit but sufficient amount of revenue. When such measures are accompanied by the aggregate demand increase, deflationary (more exactly, "disinflationary") expansion takes place. The necessary conditions for it are rooted in the use of roll over credit and other means to avoid the bankruptcy without the final redemption of the debts. The application of such instruments is a consequence of the financial evolution (creation of new monetary aggregates, new banking "practices" etc). It is in the inside money economy that financial evolution is developing and accelerating (Simons, 1936, Minsky, 1957, Chick and Dow, 1988, Niggle, 1991, Arestis and Howells, 1992, Nozdran and Berezin, 1993). Broadly speaking, we believe, that the speed of the final redemption of debts negatively depends upon

the aggregate inside money stock in the economy,

the ratio of long-term debts to short-term debts. At the same time, the frequency of the appearance of the "debt banktuptcies" threat positively depends upon the former factor and negatively upon the latter factor. Caskey and Fazzari (1986) have brilliantly described the importance of the latter factor.

We must take into account, however, that if "deflationary expansion" is not accompanied by the final liquidation of debts or even is tied up with the additional inside money creation, new financial crisis becomes inevitable. As Wolfson (1995) has proved, economic recession in the USA in the 1990-92 was generated first of all by the enormous amount of the credit market outstanding debt.

These reasonings may change the character of some other theories and hypotheses. Consider Minskian theory of stagflation (Minsky, 1985, 1986). According to this theory, stagflation appears because of the attempts of the government to smooth out "a debt deflation". "Stagflation is a substitute for a big depression" (Minsky, 1985: 52). We think that this statement is absolutely true only combined with recognition of it as being endogenously inherent feature of the inside money economy (in comparison with the outside money economy). Broadly speaking, it can also be true in relation to the effects of the expansionary macroeconomic policy, if the problem of the redemption of debts is important