Sacrifice Ratios and Inflation Targeting: The Role of Credibility
AbstractTwo recent papers (Gonçalves and Carvalho, 2009; and Brito, 2010) hold contradictory views regarding the role of inflation targeting during periods of disinflation. The first paper claims that inflation targeting reduces sacrifice ratios—i.e., the ratio of output losses to the change in trend inflation—during disinflations; the second paper refutes this result. We show here that inflation targeting only matters if disinflations are slow. The credibility gains of a fast disinflation make inflation targeting irrelevant for reducing the output-inflation trade-off.
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Bibliographic InfoPaper provided by UNIVERSIDAD DE LOS ANDES-CEDE in its series DOCUMENTOS CEDE with number 009325.
Date of creation: 07 Feb 2012
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-08 (All new papers)
- NEP-MAC-2012-03-08 (Macroeconomics)
- NEP-MON-2012-03-08 (Monetary Economics)
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- Brito, Ricardo D., 2010. "Inflation Targeting Does Not Matter: Another Look at OECD Economies’ Output Sacrifice Ratios," Insper Working Papers wpe_212, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
- Laurence M. Ball & Nicolás De Roux & Marc Hofstetter, 2011.
"Unemployment in Latin America and the Caribbean,"
NBER Working Papers
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- Laurence Ball & Nicolás De Roux & Marc Hofstetter, 2011. "Unemployment in Latin America and the Caribbean," DOCUMENTOS CEDE 008917, UNIVERSIDAD DE LOS ANDES-CEDE.
- International Monetary Fund, 2011. "Unemployment in Latin America and the Caribbean," IMF Working Papers 11/252, International Monetary Fund.
- Laurence Ball & Nicol�s De Roux & Marc Hofstetter, 2011. "Unemployment in Latin America and the Caribbean," Economics Working Paper Archive 582, The Johns Hopkins University,Department of Economics.
- Takashi Senda & Julie K Smith, 2008. "Inflation History And The Sacrifice Ratio: Episode-Specific Evidence," Contemporary Economic Policy, Western Economic Association International, vol. 26(3), pages 409-419, 07.
- Hofstetter, Marc, 2008.
"Disinflations in Latin America and the Caribbean: A free lunch?,"
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Elsevier, vol. 30(1), pages 327-345, March.
- Marc Hofstetter, 2004. "Disinflations in Latin America and the Caribbean: A Free Lunch?," Economics Working Paper Archive 506, The Johns Hopkins University,Department of Economics.
- Marc Hofstetter, 2006. "Disinflations In Latin America And The Caribbean: A Free Lunch?," DOCUMENTOS CEDE 002375, UNIVERSIDAD DE LOS ANDES-CEDE.
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