What determines the sacrifice ratio?
This paper investigates the determinants of the "sacrifice ratio" for disinflation: the ratio of the loss in output to the fall in trend inflation. I develop a method for estimating the sacrifice ratio in individual disinflation episodes, and apply it to 65 episodes in moderate-inflation OECD countries. In this sample. the sacrifice ratio is decreasing in the speed of disinflation: cold turkey is less costly than gradualism. The ratio is also decreasing in the flexibility of wage-setting institutions. The openness of the economy has no effect on the ratio. and the effects of incomes policies and the initial level of inflation are unclear.
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- Okun, Arthur M, 1978. "Efficient Disinflationary Policies," American Economic Review, American Economic Association, vol. 68(2), pages 348-352, May.
- Thomas J. Sargent, 1982.
"The Ends of Four Big Inflations,"
NBER Chapters,in: Inflation: Causes and Effects, pages 41-98
National Bureau of Economic Research, Inc.
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- Robert J. Gordon, 1982. "Why Stopping Inflation May Be Costly: Evidence from Fourteen Historical Episodes," NBER Chapters,in: Inflation: Causes and Effects, pages 11-40 National Bureau of Economic Research, Inc.
- Thomas J. Sargent, 1981. "Stopping moderate inflations: the methods of Poincaré and Thatcher," Working Papers 1, Federal Reserve Bank of Minneapolis.
- Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
- 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. Full references (including those not matched with items on IDEAS)
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