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Inflation Targeting and the Sacrifice Ratio

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  • S. Gonçalves, Carlos Eduardo
  • Carvalho, Alexandre

Abstract

In this paper we show that economies that adopted the inflation targeting (IT) regime have been able to "disinflate" less costly. The effect of IT on the sacrifice ratio is not only statistically significant, but also economically very important. This result is all the more interesting given the lack of robust empirical evidence in favor of IT. By significantly reducing the short-run costs of disinflation, IT may render the attainability of lower inflation levels politically more feasible.

Suggested Citation

  • S. Gonçalves, Carlos Eduardo & Carvalho, Alexandre, 2008. "Inflation Targeting and the Sacrifice Ratio," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 62(2), October.
    • Handle: RePEc:fgv:epgrbe:v:62:y:2008:i:2:a:1183
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    References listed on IDEAS

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    1. Robert E. Lucas, 2001. "Inflation and Welfare," International Economic Association Series, in: Axel Leijonhufvud (ed.), Monetary Theory as a Basis for Monetary Policy, chapter 4, pages 96-142, Palgrave Macmillan.
    2. Goncalves, Carlos Eduardo S. & Salles, Joao M., 2008. "Inflation targeting in emerging economies: What do the data say?," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 312-318, February.
    3. Laurence M. Ball & Niamh Sheridan, 2004. "Does Inflation Targeting Matter?," NBER Chapters, in: The Inflation-Targeting Debate, pages 249-276, National Bureau of Economic Research, Inc.
    4. Posen, Adam, 1998. "Central Bank Independence and Disinflationary Credibility: A Missing Link?," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 335-359, July.
    5. Laurence Ball, 1994. "What Determines the Sacrifice Ratio?," NBER Chapters, in: Monetary Policy, pages 155-193, National Bureau of Economic Research, Inc.
    6. Taylor, John B, 1983. "Union Wage Settlements during a Disinflation," American Economic Review, American Economic Association, vol. 73(5), pages 981-993, December.
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    Cited by:

    1. Martin Stojanovikj & Goran Petrevski, 2024. "Inflation targeting and disinflation costs in Emerging Market economies," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 51(1), pages 283-312, February.
    2. Goran Petrevski, 2023. "Macroeconomic Effects of Inflation Targeting: A Survey of the Empirical Literature," Papers 2305.17474, arXiv.org.
    3. Eduardo Loría & Raúl Tirado, 2022. "Sacrifice rate and labour precariousness in Mexico, 2005Q1-2019Q4," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, vol. 41(87), pages 427-456, December.

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