A BENEFIT‐COST ANALYSIS OF DISINFLATION

Christopher Neely and Christopher Waller

Contemporary Economic Policy, 1997, vol. 15, issue 1, 50-64

Abstract: This paper contains a benefit‐cost analysis of disinflation. The analysis measures the costs of disinflation by “sacrifice ratios”—the output lost during a disinflation‐induced recession. The benefits of disinflation are from recent research that associates lower inflation with higher GDP growth rates. The analysis calculates sacrifice ratios and the growth effects of disinflation and critiques the methods that economists typically use to calculate these benefits and costs. The estimates are quite fragile but nevertheless show that the lost output from a disinflation‐induced recession typically will be recouped in 10 to 15 years.

Date: 1997
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