2001
DOI: 10.1198/07350010152596664
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Abstract: This paper investigates the statistical properties of the U.S. sacrifice ratio-the cumulative output loss arising from a permanent reduction in inflation. We derive estimates of the sacrifice ratio from three structural VAR models and then conduct Monte Carlo simulations to analyze their sampling distribution. While the point estimates of the sacrifice ratio confirm the results reported in earlier studies, we find that the estimates are very imprecise and that the degree of imprecision increases with the compl… Show more

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Cited by 107 publications
(91 citation statements)
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“…This suggests that our selected episodes are leading the policy 13 Cecchetti and Rich (2001) use long-run restrictions on output to assess the sacrifice ratio. However, in our framework, these restrictions are imposed on nominal variables rather than on real variables.…”
Section: An Alternative Identification Strategymentioning
confidence: 99%
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“…This suggests that our selected episodes are leading the policy 13 Cecchetti and Rich (2001) use long-run restrictions on output to assess the sacrifice ratio. However, in our framework, these restrictions are imposed on nominal variables rather than on real variables.…”
Section: An Alternative Identification Strategymentioning
confidence: 99%
“…Erceg and Levin (2003), resorting to similar techniques as in Ball (1994), report a sacrifice ratio of 1.7%. Cecchetti (1994) and Cecchetti and Rich (2001) find estimates ranging from 1.3% to almost 10% using Vector AutoRegression techniques. Recent studies (see Filardo (1998), Owyang and Ramey (2004), Francis and Owyang (2005)) have put the emphasis on potential non-linearities in the sacrifice ratio, but still find that disinflation policies are associated with cumulative output losses greater than 1%.…”
Section: Introductionmentioning
confidence: 99%
“…According to the expectations-augmented Phillips curve, actual inflation, , exceeds expected inflation, , if the actual unemployment rate, u, is less than the natural rate, u; actual inflation is less than expected inflation if the unemployment rate exceeds the natural Based on historical disinflationary episodes experienced by some countries. Cecchetti & Rich (2001); Belke & Böing (2014) separately applied structural vector autoregressive technique and found that most countries had sacrifice ratios of between -1 and 2 percent of real GDP for a reduction in inflation of one percentage point. Dholakia (2014) estimated the sacrifice ratio and cost of inflation for the Indian economy.…”
Section: Literature Reviewmentioning
confidence: 99%
“…Again, the inflation rate was significantly reduced by 76.5% during the periods 1996-2000, and 69.7% for the periods 2006(CBN Statistical Bulletin, 2009, 2012.These inflation reductions impose a cost to the economy in terms of output lost. Several studies (Belke & Böing, 2014;Dramani & Thiam, 2012;Daniels & VanHoose, 2004;Cecchetti & Rich, 2001;Muñoz-Torres, 2005;interalia) have succulently demonstrate that the sacrifice ratio differs considerably among countries, yet this is unknown for Nigeria.As further enunciated by Daniels & VanHoose (2004) and Dramani & Thiam (2012), it is possible to reduce the size of the sacrifice ratio without a corresponding increase in the rate of inflation. This has made this study apt to ascertain what Nigeria's sacrifice ratio could be after many successful inflation reductions over the years.…”
Section: Introductionmentioning
confidence: 99%
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