Sacrifice Ratios and Inflation Targeting: The Role of Credibility
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.
|Date of creation:||07 Feb 2012|
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- 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.
- 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.
- Hofstetter, Marc, 2008. "Disinflations in Latin America and the Caribbean: A free lunch?," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 327-345, March.
- Marc Hofstetter, 2006. "Disinflations In Latin America And The Caribbean: A Free Lunch?," DOCUMENTOS CEDE 002375, UNIVERSIDAD DE LOS ANDES-CEDE.
- Laurence Ball & Nicolás De Roux & Marc Hofstetter, 2011.
"Unemployment in Latin America and the Caribbean,"
008917, UNIVERSIDAD DE LOS ANDES-CEDE.
- Laurence Ball & Nicolás De Roux & Marc Hofstetter, 2011. "Unemployment in Latin America and the Caribbean," Economics Working Paper Archive 582, The Johns Hopkins University,Department of Economics.
- Laurence M. Ball & Nicolás De Roux & Marc Hofstetter, 2011. "Unemployment in Latin America and the Caribbean," NBER Working Papers 17274, National Bureau of Economic Research, Inc.
- Laurence M. Ball & Nicolas de Roux Uribe & Marc Hofstetter, 2011. "Unemployment in Latin America and the Caribbean," IMF Working Papers 11/252, .
- 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.
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