Sacrifice Ratios for Euro Area Countries – New Evidence on the Costs of Price Stability

Ansgar Belke and Tobias Böing

No 520, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: The purpose of this article is to deliver new estimates of the sacrifice ratio of Euro area countries. A high sacrifice ratio means a large loss of gross domestic product (GDP) or employment for a given reduction in inflation. In order to estimate the cost of adjustments in inflation rates by the sacrifice ratio, we apply, firstly, a structural vector autoregressive technique following Cecchetti and Rich (2001) and, secondly, one by Ball (1994) based on historical disinflationary episodes. Our findings indicate that most countries have sacrifice ratios of between -1 and 2 per cent of real GDP for a reduction in inflation of one percentage point. In some cases, these estimates deliver negative sacrifice ratios.

Keywords: sacrifice ratio; structural adjustment; Euro area; VAR; episode method; Phillips curve (search for similar items in EconPapers)
JEL-codes: E31 F49 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Sacrifice Ratios for Euro Area Countries: New Evidence on the Costs of Price Stability (2014)
Working Paper: Sacrifice Ratios for Euro Area Countries: New Evidence on the Costs of Price Stability (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:520

DOI: 10.4419/86788595

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