Abstract/Description
Motivated by the 2022 uptick in headline inflation and the marked shift towards globally more restrictive monetary policies, this paper examines the sacrifice ratio, i.e., the percentage cost of actual production lost to every one percentage point decrease in (trend) inflation, for selected Southeast Asian economies. Results indicate that upon adopting a contractive monetary policy, GDP growth dropped by up to 0.5 per cent, confirming that monetary authorities’ disinflationary policies typically trigger declines in both output and employment. However, as even minor adjustments to the way of determining the sacrifice ratio lead to varying results, caution ought to be applied when deriving potential (monetary) policy recommendations.
Keywords
Monetary Policy, Interest Rates, Inflation, Sacrifice Ratio, (Trend) Output
Location
MCC-15, AMAN-CED, Second Floor
Session Theme
2D: Inflation, Debt and Remittances
Session Type
Parallel Technical Session
Session Discussant
Zulfiqar Hyder, State Bank of Pakistan (SBP), Karachi
Start Date
17-11-2023 11:50 AM
End Date
17-11-2023 1:20 PM
Recommended Citation
Dierks, L. (2023). Inflation, Monetary Policy, and the Sacrifice Ratio. CBER Conference. Retrieved from https://ir.iba.edu.pk/esdcber/2023/program/29
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Included in
Inflation, Monetary Policy, and the Sacrifice Ratio
MCC-15, AMAN-CED, Second Floor
Motivated by the 2022 uptick in headline inflation and the marked shift towards globally more restrictive monetary policies, this paper examines the sacrifice ratio, i.e., the percentage cost of actual production lost to every one percentage point decrease in (trend) inflation, for selected Southeast Asian economies. Results indicate that upon adopting a contractive monetary policy, GDP growth dropped by up to 0.5 per cent, confirming that monetary authorities’ disinflationary policies typically trigger declines in both output and employment. However, as even minor adjustments to the way of determining the sacrifice ratio lead to varying results, caution ought to be applied when deriving potential (monetary) policy recommendations.
