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Related to Sacrifice Ratio: Okun's law
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In light of these results, we proc[kappa]d to calculate the sacrifice ratio implied by the imperfect credibility model.
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.
Using equations (22) and (19), the cost of disinflation measured by the sacrifice ratio (sr) is given by:
When the change in inflation is restricted to be only 1 percentage point, the difference between the sacrifice ratio and the benefit ratio is small.
15) The sacrifice ratios obtained from results using the Grande region unemployment gap for Luxembourg [1.
One can readily use this stylized model to obtain an analytical expression for the sacrifice ratio.
We thus resort to a value drawn from a calibrated model, FPS, which has embedded a sacrifice ratio of 2.
For each of these episodes Ball has computed a sacrifice ratio - total point-years of unemployment above that at episode start, divided by total points of inflation lost - which is used as the dependent variable in these regressions.