Sacrifice Ratios and Inflation Targeting: The Role of Credibility
type="main" xml:lang="en"> <title type="main">Abstract</title> <p>Proponents of inflation targeting (IT) claim that it increases the credibility of central banks, which in turn should result in smaller sacrifice ratios (SRs) – that is, the ratio of output losses to the change in trend inflation during disinflations. We show that IT does indeed reduce SRs, but only if the disinflation is long: in a four-year-long disinflation, our estimates suggest that IT reduces SRs by at least 60%. In fast disinflations, IT does not affect SRs. These results suggest that IT and fast disinflations are substitute alternatives in enhancing the credibility of disinflationary processes and reducing their costs. </section>
Year of publication: |
2014
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Authors: | Roux, Nicolás De ; Hofstetter, Marc |
Published in: |
International Finance. - Wiley Blackwell, ISSN 1367-0271. - Vol. 17.2014, 3, p. 381-401
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Publisher: |
Wiley Blackwell |
Saved in:
Online Resource
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