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Sacrifice Ratios and Inflation Targeting: The Role of Credibility

  • Nicolás De Roux


  • Marc Hofstetter


Two recent papers (Gonçalves and Carvalho, 2009; and Brito, 2010) hold contradictory views regarding the role of inflation targeting during periods of disinflation. The first paper claims that inflation targeting reduces sacrifice ratios-i.e., the ratio of output losses to the change in trend inflation-during disinflations; the second paper refutes this result. We show here that inflation targeting only matters if disinflations are slow. The credibility gains of a fast disinflation make inflation targeting irrelevant for reducing the output-inflation trade-off.

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Paper provided by UNIVERSIDAD DE LOS ANDES-CEDE in its series DOCUMENTOS CEDE with number 009325.

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Length: 22
Date of creation: 07 Feb 2012
Date of revision:
Handle: RePEc:col:000089:009325
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  1. Marc Hofstetter, 2004. "Disinflations in Latin America and the Caribbean: A Free Lunch?," Economics Working Paper Archive 506, The Johns Hopkins University,Department of Economics.
  2. Laurence Ball & Nicolás Roux & Marc Hofstetter, 2013. "Unemployment in Latin America and the Caribbean," Open Economies Review, Springer, vol. 24(3), pages 397-424, July.
  3. Brito, Ricardo D., 2010. "Inflation Targeting Does Not Matter: Another Look at OECD Economies’ Output Sacrifice Ratios," Insper Working Papers wpe_212, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  4. Takashi Senda & Julie K Smith, 2008. "Inflation History And The Sacrifice Ratio: Episode-Specific Evidence," Contemporary Economic Policy, Western Economic Association International, vol. 26(3), pages 409-419, 07.
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