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Sacrifice Ratios with Long-Lived Effects

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  • Lawrence Huiyan Zhang
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    Abstract

    This paper is a theoretical and empirical study of sacrifice ratios-that is, the cost of reducing inflation during periods when disinflation produces long-lived effects on output or unemployment. New methods are developed for measuring sacrifice ratios. Sacrifice ratios that take into account long-lived effects are larger than sacrifice ratios calculated using Ball's (1994) 'standard method'. The 'standard method' also has a larger downward bias for countries experiencing larger long-lived effects. The sacrifice ratio for the United States falls somewhere in the middle of those for G-7 countries when long-lived effects are taken into account, while it is at the top when calculated using the 'standard method'. Finally, there is a negative relationship between sacrifice ratios and initial inflation rates, and the cost of reducing inflation is generally lower when the speed of disinflation is faster. Copyright Blackwell Publishing Ltd. 2005

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal International Finance.

    Volume (Year): 8 (2005)
    Issue (Month): 2 (08)
    Pages: 231-262

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    Handle: RePEc:bla:intfin:v:8:y:2005:i:2:p:231-262

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    Cited by:
    1. Ascari, Guido & Ropele, Tiziano, 2012. "Disinflation in a DSGE perspective: Sacrifice ratio or welfare gain ratio?," Journal of Economic Dynamics and Control, Elsevier, vol. 36(2), pages 169-182.
    2. Coffinet, J., 2006. "Ratios de sacrifice et rigidités sur le marché du travail," Bulletin de la Banque de France, Banque de France, issue 151, pages 59-73.
    3. Jérôme Coffinet✝ & Céline Poilly✝✝, 2009. "Une évaluation structurelle du ratio de sacrifice dans la zone euro," Revue d'économie politique, Dalloz, vol. 0(2), pages 273-299.
    4. Mazumder, Sandeep, 2014. "The sacrifice ratio and core inflation," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 400-421.
    5. Hofstetter, Marc, 2008. "Disinflations in Latin America and the Caribbean: A free lunch?," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 327-345, March.
    6. Marc Hofstetter, 2007. "Disinflating From Moderate Inflation," DOCUMENTOS CEDE 002373, UNIVERSIDAD DE LOS ANDES-CEDE.
    7. Emmanuel De Veirman, 2007. "Which nonlinearity in the Phillips curve? The absence of accelerating deflation in Japan," Reserve Bank of New Zealand Discussion Paper Series DP2007/14, Reserve Bank of New Zealand.
    8. Guido Ascari & Tiziano Ropele, 2012. "Disinflation effects in a medium-scale New Keynesian model: money supply rule versus interest rate rule," Temi di discussione (Economic working papers) 867, Bank of Italy, Economic Research and International Relations Area.
    9. Bowdler, Christopher & Nunziata, Luca, 2010. "Labor market structures and the sacrifice ratio," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 816-826, September.

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