This model deals with a non-linear model of inflation. It is formulated in accordance with a static model of neo-keynesian theory (So called Papandreu's model [1]) as a dynamized complete neokeynesian model augmented by the differential equation for expected inflation. It will be shown that the model exhibits more complicated behaviour than linear oscillations i.e. periodic non-linear oscillations [2]. The conclusion to be made is that the deterministic dynamic versions of traditional economic models can produce non-linear periodic oscillations of its variables so these fairly simple systems better approximate real motion of macro-economic variables than linear systems do. The most important feature of non-linear oscillations is the possibility of more adequate modelling of the economic cycle which usually exhibits moderate increase at the beginning replaced by very quick expansion and initially slow decrease changing to a short and sharp fall. Non-linear oscillations are better than linear oscillations for the description of the such movement of economic variables.
