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What Determines the Sacrifice Ratio?

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Author Info
Laurence Ball

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Abstract

This paper investigates the determinants of the "sacrifice ratio" for disinflation: the ratio of the loss in output to the fall in trend inflation. I develop a method for estimating the sacrifice ratio in individual disinflation episodes, and apply it to 65 episodes in moderate-inflation OECD countries. In this sample. the sacrifice ratio is decreasing in the speed of disinflation: cold turkey is less costly than gradualism. The ratio is also decreasing in the flexibility of wage-setting institutions. The openness of the economy has no effect on the ratio. and the effects of incomes policies and the initial level of inflation are unclear.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4306.

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Date of creation: Mar 1993
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Handle: RePEc:nbr:nberwo:4306

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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  1. David Romer, 1991. "Openness and inflation: theory and evidence," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
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  2. Ball, Laurence Markham, 1987. "Externalities from Contract Length," American Economic Review, American Economic Association, vol. 77(4), pages 615-29, September. [Downloadable!] (restricted)
  3. Grubb, Dennis & Jackman, Richard & Layard, Richard, 1983. "Wage rigidity and unemployment in OECD countries," European Economic Review, Elsevier, vol. 21(1-2), pages 11-39. [Downloadable!] (restricted)
  4. Christina D. Romer and David H. Romer., 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," Economics Working Papers 89-107, University of California at Berkeley.
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  5. Okun, Arthur M, 1978. "Efficient Disinflationary Policies," American Economic Review, American Economic Association, vol. 68(2), pages 348-52, May.
  6. Taylor, John B, 1983. "Union Wage Settlements during a Disinflation," American Economic Review, American Economic Association, vol. 73(5), pages 981-93, December. [Downloadable!] (restricted)
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  7. Mankiw, N Gregory, 1990. "A Quick Refresher Course in Macroeconomics," Journal of Economic Literature, American Economic Association, vol. 28(4), pages 1645-60, December. [Downloadable!] (restricted)
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  8. Laurence Ball & N. Gregory Mankiw & David Romer, 1988. "The New Keynsesian Economics and the Output-Inflation Trade-off," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1988-1), pages 1-82. [Downloadable!]
  9. Robert J. Gordon, 1982. "Why Stopping Inflation May Be Costly: Evidence from Fourteen Historical Episodes," NBER Chapters, in: Inflation: Causes and Effects, pages 11-40 National Bureau of Economic Research, Inc. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. John P. Judd & Jack H. Beebe, 1993. "The output-inflation trade-off in the United States: has it changed since the late 1970s?," Economic Review, Federal Reserve Bank of San Francisco, pages 25-34. [Downloadable!]
  2. Michael Bruno & William Easterly, 1996. "Inflation and growth: in search of a stable relationship," Proceedings, Federal Reserve Bank of St. Louis, issue May, pages 139-146. [Downloadable!]
  3. Luis Fernando melo V. & Martha Misas A., . "Modelos Estructurales de Inflación en Colombia: Estimación a traves de Minimos Cuadrados Flexibles," Borradores de Economia 282, Banco de la Republica de Colombia. [Downloadable!]
    Other versions:
  4. Andreas Fischer, 1996. "Central bank independence and sacrifice ratios," Open Economies Review, Springer, vol. 7(1), pages 5-18, January. [Downloadable!] (restricted)
  5. Mervyn King, 1994. "Monetary policy in the UK," Fiscal Studies, Institute for Fiscal Studies, vol. 15(3), pages 109-28, August. [Downloadable!]
  6. James Heintz & Gerald Epstein, 2006. "Monetary Policy and Financial Sector Reform For Employment Creation and Poverty Reduction in Ghana," Working Papers wp113, Political Economy Research Institute, University of Massachusetts at Amherst. [Downloadable!]
  7. André Farber & Nguyen Huu Tu & Tran Tri Dung & Quan-Hoang Vuong, 2008. "The financial storms in Vietnam’s transition economy: A reasoning on the 1991-2008 period," Working Papers CEB 08-023.RS, Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB). [Downloadable!]
  8. David Mayes & Matti Viren, 2002. "Asymmetry and the Problem of Aggregation in the Euro Area," Empirica, Springer, vol. 29(1), pages 47-73, March. [Downloadable!] (restricted)
    Other versions:
  9. J. Benson Durham, 2001. "Sacrifice ratios and monetary policy credibility: do smaller budget deficits, inflation-indexed debt, and inflation targets lower disinflation costs?," Finance and Economics Discussion Series 2001-47, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  10. De Gregorio, Jose, 1996. "Inflation, growth, and central banks : theory and evidence," Policy Research Working Paper Series 1575, The World Bank. [Downloadable!]
  11. Michael Dotsey & Jed L. DeVaro, 1995. "Was the disinflation of the early 1980's anticipated?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 41-60. [Downloadable!]
  12. Mayes , David G. & Virén , Matti, 2004. "Asymmetries in the Euro area economy," Research Discussion Papers 9/2004, Bank of Finland. [Downloadable!]
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  13. Assaf Razin & Prakash Loungani, 2005. "US Monetary Policy Announcements and the Term Structure of Interest Rate Differentials: Evidence from Hong Kong and Singapore," Working Papers 102005, Hong Kong Institute for Monetary Research. [Downloadable!]
  14. Loungani, Prakash & Razin, Assaf, 2005. "Globalization and Disinflation: The Efficiency Channel," CEPR Discussion Papers 4895, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  15. Gerald Epstein & James Heintz, 2006. "Monetary Policy and Financial Sector Reform for Employment Creation and Poverty Reduction in Ghana," Country Study 2, International Policy Centre for Inclusive Growth. [Downloadable!]
  16. Michael Bruno & William Easterly, 1995. "Inflation Crises and Long-Run Growth," NBER Working Papers 5209, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  17. Niklas J. Westelius, 2005. "Discretionary Monetary Policy and Inflation Persistence," Hunter College Department of Economics Working Papers 424, Hunter College: Department of Economics. [Downloadable!]
    Other versions:
  18. António Portugal Duarte, 2005. "The Portuguese Disinflation Process: Analysis of Some Costs and Benefits," International Finance 0504005, EconWPA. [Downloadable!]
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