The sacrifice ratio and active fiscal policy

Christopher Gibbs and Herbert Xin

No 2024-12, Working Papers from University of Sydney, School of Economics

Abstract: We compare the sacrifice ratio for a disinflation under an active monetary and passive fiscal policy mix to the sacrifice ratio under passive monetary and active fiscal policy, holding all else equal. The sacrifice ratio may be higher or lower in the active fiscal policy regime depending on the fiscal rule and the design of the disinflation policy. Fiscal led disinflations may be less costly than monetary led ones when they are anticipated. However, they may generate larger sacrifice ratios than monetary led ones when implemented “cold turkey.” Overall, the variance of the sacrifice ratio under fiscal led policies is much higher than that under monetary led policies.

Keywords: Sacrifice ratio; monetary policy; fiscal policy; inflation; disinflation (search for similar items in EconPapers)
Date: 2024-06
New Economics Papers: this item is included in nep-cba
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Journal Article: The sacrifice ratio and active fiscal policy (2024)
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