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The sacrifice ratio and core inflation

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  • Mazumder, Sandeep

Abstract

The existing body of research that measures the sacrifice ratio and the determinants of the sacrifice ratio has crucially identified several disinflation episodes across many different countries, while also overwhelmingly finding evidence in favor of the “cold-turkey” approach to disinflation. However all previous studies in this topic are based exclusively on headline measures of inflation. In this paper we investigate what happens if we instead use core inflation to both identify disinflation episodes and measure the sacrifice ratio. Several important differences emerge: for example, headline inflation produces more disinflation episodes than core inflation does – something which is particularly conspicuous during the Great Recession – and episodes that are generally shorter in length. We also find that the argument in favor of the cold-turkey approach to reducing inflation disappears when combining the use of core inflation with sacrifice ratio measures that allow for varying persistent effects on output of disinflation.

Suggested Citation

  • Mazumder, Sandeep, 2014. "The sacrifice ratio and core inflation," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 400-421.
    • Handle: RePEc:eee:jmacro:v:40:y:2014:i:c:p:400-421
    DOI: 10.1016/j.jmacro.2014.02.002
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    Cited by:

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    More about this item

    Keywords

    Sacrifice ratios; Disinflation; Core inflation;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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