The New Keynesian Model and Sacrifice Ratios: Some Measurement Issues

André Lunardelli and Marcio Nakane

No 2019_18, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: There is some confusion in the literature about how to calculate sacrifice ratios (SRs), and we show that correcting for this problem implies that the way computed by Ascari and Ropele (2012) generates values four times larger than the way reported by most of the empirical studies. Therefore, contrary to their claim, their baseline simulations with the medium-scale New Keynesian model with past inflation indexation do not generate realistic sacrifice ratios, and simulations with plausible but less frequently used parameters can only reach the very low end of the range of the estimates obtained in the empirical studies.

Keywords: Disinflation; sacrifice ratio; inflation persistence. (search for similar items in EconPapers)
JEL-codes: D03 E31 E32 E42 E5 J6 (search for similar items in EconPapers)
Date: 2019-07-01
New Economics Papers: this item is included in nep-mac
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