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Sacrifice ratios and the conduct of monetary policy in conditions of low inflation

  • W. Wascher
  • Palle S. Andersen

The focus of monetary policy has shifted markedly over the past 15 years away from attempts to fine tune the economy towards the longer-run goal of attaining price stability and creating the necessary conditions for sustainable economic growth. In an attempt to minimise the costs of such a transition, central banks have become more independent and monetary policy more transparent, changes intended to increase the credibility of monetary policy and to reduce short-run sacrifice ratios. However, concerns have been expressed that an environment of price stability and independent central banks may instead lead to higher sacrifice ratios and, perhaps, even higher rates of structural unemployment, because of the increased importance of nominal and real rigidities at low rates of inflation.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 82.

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Length: 58 pages
Date of creation: Nov 1999
Date of revision:
Handle: RePEc:bis:biswps:82
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  1. Hess, Gregory D. & Shin, Kwanho, 1999. "Some Intranational Evidence On Output-Inflation Trade-Offs," Macroeconomic Dynamics, Cambridge University Press, vol. 3(02), pages 187-203, June.
  2. Manabu Asai, 1999. "Time series evidence on a new Keynesian theory of the output-inflation trade-off," Applied Economics Letters, Taylor & Francis Journals, vol. 6(9), pages 539-541.
  3. Michael T. Kiley, 1996. "Endogenous price stickiness and business cycle persistence," Finance and Economics Discussion Series 96-23, Board of Governors of the Federal Reserve System (U.S.).
  4. Gordon, Robert J, 1999. "The Aftermath of the 1992 ERM Break-up: Was There a Macroeconomic Free Lunch?," CEPR Discussion Papers 2073, C.E.P.R. Discussion Papers.
  5. Burdekin, Richard C K & Siklos, Pierre L, 1999. "Exchange Rate Regimes and Shifts in Inflation Persistence: Does Nothing Else Matter?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(2), pages 235-47, May.
  6. Anthony Yates & Bryan Chapple, 1996. "What Determines the Short-run Output-Inflation Trade-off?," Bank of England working papers 53, Bank of England.
  7. Laurence Ball, 1996. "Disinflation and the NAIRU," NBER Working Papers 5520, National Bureau of Economic Research, Inc.
  8. Laurence Ball, 1992. "Disinflation With Imperfect Credibility," NBER Working Papers 3983, National Bureau of Economic Research, Inc.
  9. Grubb, David B. & Jackman, Richard & Layard, Richard, 1983. "Wage rigidity and unemployment in OECD countries," European Economic Review, Elsevier, vol. 21(1-2), pages 11-39.
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