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Estimation of the Czech Republic Sacrifice Ratio for the Transition Period

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  • Roman Hušek
  • Tomáš Formánek
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    Abstract

    Estimation of the costs of disinflation policy is usually done using the sacrifice ratio (SR) coefficient. This paper provides two alternative estimates of SR for the Czech economy. The estimates are based on relatively simple, but transparent and verified models, i.e. their vector autoregression and vector moving average representations. When we analysze our estimates of the Czech SR from the accuracy point of view, we see that the results are very sensitive to the way of definition of monetary shocks. Even though the individual estimates of the SR are generally not accurate enough for monetary policy decision making, there is a good probability that the Czech SR was negative during the transition period analysed, with relatively low absolute value. We may therefore assume that if the Czech National Bank decides to incur monetary restriction, such action would not have long-term significant negative impact on output.

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    Bibliographic Info

    Article provided by University of Economics, Prague in its journal Prague Economic Papers.

    Volume (Year): 2005 (2005)
    Issue (Month): 1 ()
    Pages: 51-63

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    Handle: RePEc:prg:jnlpep:v:2005:y:2005:i:1:id:252:p:51-63

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    Related research

    Keywords: sacrifice ratio; impulse response (IR) function; Blanchard-Quah decomposition;

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    References

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    1. Stephen G. Cecchetti & Robert W. Rich, 1999. "Structural estimates of the U.S. sacrifice ratio," Staff Reports 71, Federal Reserve Bank of New York.
    2. Matthew D. Shapiro & Mark W. Watson, 1989. "Sources of Business Cycle Fluctuations," NBER Working Papers 2589, National Bureau of Economic Research, Inc.
    3. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September.
    4. Vittorio Corbo & Oscar Landerretche & Klaus Schmidt-Hebbel, 2001. "Assessing Inflation Targeting after a Decade of World Experience," Working Papers 51, Oesterreichische Nationalbank (Austrian Central Bank).
    5. Jeffrey C. Fuhrer, 1995. "The persistence of inflation and the cost of disinflation," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 3-16.
    6. Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-13, May.
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