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Determinants of the sacrifice ratio: Evidence from OECD and non-OECD countries

  • Mazumder, Sandeep

This paper measures sacrifice ratios for all countries in the world over an approximately forty year time period, in addition to exploring the determinants of worldwide sacrifice ratios. We test the most commonly-cited determinants: the speed of disinflation, openness, inflation targeting, central bank independence, and political factors for both OECD and non-OECD countries. We find that the speed of disinflation is the most important determinant of OECD sacrifice ratios, but puzzlingly has no effect on non-OECD nations' disinflation costs. Instead we find evidence that greater central bank independence and more openness are associated with lower non-OECD sacrifice ratios. We also find that the ratio of government debt to GDP – a variable that is not important when it comes to OECD countries – is highly significant for non-OECD economies. Specifically, we find that higher indebtedness is associated with lower sacrifice ratios in non-OECD nations, suggesting that greater levels of debt do not lead to higher expectations of inflation. Furthermore we find evidence that the negative impact of debt on non-OECD sacrifice ratios is being driven by middle income economies.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 40 (2014)
Issue (Month): C ()
Pages: 117-135

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Handle: RePEc:eee:ecmode:v:40:y:2014:i:c:p:117-135
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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