Estimation of the Czech Republic Sacrifice Ratio for the Transition Period

Roman Hušek and Tomáš Formánek

Prague Economic Papers, 2005, vol. 2005, issue 1, 51-63

Abstract: Estimation of the costs of disinflation policy is usually done using the sacrifice ratio (SR) coefficient. This paper provides two alternative estimates of SR for the Czech economy. The estimates are based on relatively simple, but transparent and verified models, i.e. their vector autoregression and vector moving average representations. When we analysze our estimates of the Czech SR from the accuracy point of view, we see that the results are very sensitive to the way of definition of monetary shocks. Even though the individual estimates of the SR are generally not accurate enough for monetary policy decision making, there is a good probability that the Czech SR was negative during the transition period analysed, with relatively low absolute value. We may therefore assume that if the Czech National Bank decides to incur monetary restriction, such action would not have long-term significant negative impact on output.

Keywords: sacrifice ratio; impulse response (IR) function; Blanchard-Quah decomposition (search for similar items in EconPapers)
JEL-codes: C32 E31 E52 (search for similar items in EconPapers)
Date: 2005
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DOI: 10.18267/j.pep.252

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