What Determines the Sacrifice Ratio? A Bayesian Model Averaging Approach

29 Pages Posted: 2 Jun 2020

See all articles by Hajime Katayama

Hajime Katayama

Waseda University - School of Commerce

Natalia Ponomareva

Macquarie University - Division of Economic and Financial Studies; Macquarie University, Macquarie Business School

Malvin Sharma

Macquarie University

Date Written: October 2019

Abstract

Existing empirical studies on the sacrifice ratio (measuring the output cost of disinflation) consider a large number of potential explanatory variables including the length of disinflation, various institutional settings, economic conditions, and the political climate. Some results are robust across different studies, while others are not. We address the presence of model uncertainty by using the Bayesian model averaging method to identify the important determinants of the sacrifice ratio, without relying on ad hoc model selection. Our results show that the length of disinflation is the most important variable. This supports the ‘cold turkey’ argument for faster disinflation.

Suggested Citation

Katayama, Hajime and Ponomareva, Natalia and Sharma, Malvin, What Determines the Sacrifice Ratio? A Bayesian Model Averaging Approach (October 2019). Oxford Bulletin of Economics and Statistics, Vol. 81, Issue 5, pp. 960-988, 2019, Available at SSRN: https://ssrn.com/abstract=3615221 or http://dx.doi.org/10.1111/obes.12304

Hajime Katayama (Contact Author)

Waseda University - School of Commerce ( email )

School of Commerce, Waseda University
1-6-1 Nishi-Waseda Shinjyuku-ku
Tokyo, Tokyo 169 - 8050
Japan

Natalia Ponomareva

Macquarie University - Division of Economic and Financial Studies ( email )

United States

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Malvin Sharma

Macquarie University

North Ryde
Sydney, 2109
Australia

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