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Structural Estimates of the U.S. Sacrifice Ratio

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  • Cecchetti, Stephen G
  • Rich, Robert W

Abstract

This article investigates the statistical properties of the U.S. sacrifice ratio--the cumulative output loss arising from a permanent reduction in inflation. We derive estimates of the sacrifice ratio from three structural vector autoregression models and then conduct a series of simulation exercises to analyze their sampling distribution. We obtain point estimates of the sacrifice ratio that are consistent with results reported in earlier studies. However, the estimates are very imprecise, which we suggest reflects the poor quality of instruments used in estimation. We conclude that the estimates provide a very unreliable guide for assessing the output cost of disinflation policy.

Suggested Citation

  • Cecchetti, Stephen G & Rich, Robert W, 2001. "Structural Estimates of the U.S. Sacrifice Ratio," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(4), pages 416-427, October.
  • Handle: RePEc:bes:jnlbes:v:19:y:2001:i:4:p:416-27
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