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Sacrifice ratio or welfare gain ratio? Disinflation in a DSGE monetary model

  • Guido Ascari

    ()

    (University of Pavia and Kiel Institute for the World Economy)

  • Tiziano Ropele

    ()

    (Bank of Italy and Kiel Institute for the World Economy JEL classification: E31, E5)

When taken to examine disinflation monetary policies, the current workhorse DSGE model of business cycle fluctuations successfully accounts for the main stylized facts in terms of recessionary effects and sacrifice ratio. We complement the transitional analysis of the short-run costs with a rigorous welfare evaluation and show that, despite the long-lasting economic downturn, disinflation entails non-zero overall welfare gains.

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File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2010/2010-0736/en_tema_736.pdf
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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 736.

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Date of creation: Jan 2010
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Handle: RePEc:bdi:wptemi:td_736_10
Contact details of provider: Postal: Via Nazionale, 91 - 00184 Roma
Web page: http://www.bancaditalia.it

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  1. 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 416-27, October.
  2. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky information versus sticky prices: a proposal to replace the New-Keynesian Phillips curve," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  3. Anamaria Nicolae & Charles Nolan, 2004. "The Impact of Imperfect Credibility in a Transition to Price Stability," CDMA Working Paper Series 200402, Centre for Dynamic Macroeconomic Analysis.
  4. David Altig & Lawrence Christiano & Martin Eichenbaum & Jesper Linde, 2005. "Firm-Specific Capital, Nominal Rigidities and the Business Cycle," NBER Working Papers 11034, National Bureau of Economic Research, Inc.
  5. Peter J. Klenow & Oleksiy Kryvtsov, 2005. "State-Dependent or Time-Dependent Pricing: Does it Matter for Recent U.S. Inflation?," NBER Working Papers 11043, National Bureau of Economic Research, Inc.
  6. Ascari, Guido & Merkl, Christian, 2007. "Real Wage Rigidities and the Cost of Disinflations," IZA Discussion Papers 3049, Institute for the Study of Labor (IZA).
  7. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
  8. Laurence Ball, 1993. "What Determines the Sacrifice Ratio?," NBER Working Papers 4306, National Bureau of Economic Research, Inc.
  9. Guido Ascari, 2004. "Staggered prices and trend inflation: some nuisances," Macroeconomics 0404029, EconWPA.
  10. Jean-Jacques Durand & Marilyne Huchet-Bourdon & Julien Licheron, 2008. "Sacrifice ratio dispersion within the Euro Zone: what can be learned about implementing a single monetary policy?," International Review of Applied Economics, Taylor & Francis Journals, vol. 22(5), pages 601-621.
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