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A Benefit-Cost Analysis Of Disinflation

  • CHRISTOPHER J. NEELY
  • CHRISTOPHER J. WALLER

This paper contains a benefit-cost analysis of disinflation. The analysis measures the costs of disinflation by "sacrifice ratios"-the output lost during a disinflation-induced recession. The benefits of disinflation are from recent research that associates lower inflation with higher GDP growth rates. The analysis calculates sacrifice ratios and the growth effects of disinflation and critiques the methods that economists typically use to calculate these benefits and costs. The estimates are quite fragile but nevertheless show that the lost output from a disinflation-induced recession typically will be recouped in 10 to 15 years. Copyright 1997 Western Economic Association International.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1465-7287.1997.tb00454.x
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Article provided by Western Economic Association International in its journal Contemporary Economic Policy.

Volume (Year): 15 (1997)
Issue (Month): 1 (01)
Pages: 50-64

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Handle: RePEc:bla:coecpo:v:15:y:1997:i:1:p:50-64
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  1. David Mayes & Bryan Chapple, 1995. "The costs and benefits of disinflation: a critique of the sacrifice ration," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 58, March.
  2. Andreas Fischer, 1996. "Central bank independence and sacrifice ratios," Open Economies Review, Springer, vol. 7(1), pages 5-18, January.
  3. Danny Quah & Shaun Vahey, 1995. "Measuring Core Inflation," Bank of England working papers 31, Bank of England.
  4. Milton H. Marquis & Tor Einarsson, 1994. "Optimal disinflation paths when growth is endogenous," Finance and Economics Discussion Series 94-32, Board of Governors of the Federal Reserve System (U.S.).
  5. Jon Faust & Eric M. Leeper, 1994. "When do long-run identifying restrictions give reliable results?," International Finance Discussion Papers 462, Board of Governors of the Federal Reserve System (U.S.).
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