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Disinflation in a DSGE Perspective: Sacrifice Ratio or Welfare Gain Ratio?

  • Guido Ascari


    (Department of Economics and Quantitative Methods, University of Pavia)

  • Tiziano Ropele


    (Bank of Italy)

When used to examine disinflation monetary policies, the current workhorse dynamic stochastic general equilibrium model of business cycle fluctuations is able to quantitatively account 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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Paper provided by University of Pavia, Department of Economics and Quantitative Methods in its series Quaderni di Dipartimento with number 111.

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Length: 31 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:pav:wpaper:111
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