Inflation, Monetary Policy and the Sacrifice Ratio:The Case of Southeast Asia

Leef Dierks

Working Papers from South East Asian Central Banks (SEACEN) Research and Training Centre

Abstract: Motivated by the 2022 uptick in headline inflation and the marked shift towards more restrictive monetary policies globally, this paper examines the sacrifice ratio, i.e., the percentage cost of actual production lost to every one percentage point decrease in (trend) inflation, for selected Southeast Asian economies. Results indicate that upon adopting a contractive monetary policy, GDP growth dropped by up to 0.5%, confirming that monetary authorities’ disinflationary policies typically trigger declines in both output and employment. However, as even minor adjustments to the way of determining the sacrifice ratio lead to varying results, caution ought to be applied when deriving potential (monetary) policy recommendations.

Keywords: Monetary Policy; Interest Rates; Inflation; Sacrifice Ratio; (Trend) Output (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 E65 E71 (search for similar items in EconPapers)
Date: 2023-07
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-mon and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:sea:wpaper:wp50

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