Sacrifice Ratio


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Related to Sacrifice Ratio: Okun's law

Sacrifice Ratio

The cost to an economy when growth slows or stops in order to combat inflation. The ratio shows the cost for each percentage of decrease in inflation. It is calculated thusly:

Sacrifice ratio = (Dollar cost of lost production) / (Percentage of change to the inflation rate)
References in periodicals archive ?
Table 7 compares a measure of sacrifice ratio (the output-inflation volatility ratio) implied by the model under different regimes and in the model with and without credit frictions.
A reduction of the sacrifice ratio could be a result of improved policy credibility for inflation targeting.
Economists have suggested a wide range of determinants of the sacrifice ratio.
If the slope of the Phillips curve has become flatter, as recent evidence seems to suggest, it implies that the sacrifice ratio is now larger, meaning the central bank must allow output to fall further below potential (that is, it must open up a larger gap) to achieve a given reduction in inflation.
Given the invariance of the sacrifice ratio, the number of required man-years of excess unemployment is hardwired.
One can readily use this stylized model to obtain an analytical expression for the sacrifice ratio.
If the total costs of going from 2 percent to zero inflation is 4 percent of GDP, as implied by a sacrifice ratio of 2, the break-even point turns out to be B* = C(d - g) = 0.
The sacrifice ratio typically refers to the output cost for a permanent decline in inflation during a disinflation episode, whereas the benefice ratio typically refers to the output gain for a permanent rise in inflation during an episode of accelerating inflation.
There are at least two problems with the sacrifice ratio approach.
The sacrifice ratio is the cumulative loss of output during a disinflation episode as a percentage of initial output divided by the cumulative reduction in the inflation rate.
Second, we test whether the duration of inflation has nonlinear effects on the sacrifice ratio that are consistent with a rapid decline in the credibility of the central bank.
Ball calculates the sacrifice ratio for sixty-five individual disinflation episodes in the OECD countries.