The Cost Of Disinflation: The Sacrifice Ratio

PIDE Knowledge Brief April, 2020
Publication Year : 2020

Price Stability Is An Imperative In Economics. Independent Central Banks Have Therefore Been Encouraged By The Imf In All Countries With A Clear Mandate To Achieve A Low Inflation Target. It Is Well Accepted That Long Run Sustained Growth Requires A Stable Low Inflation Environment (Barro, 1996 And Feldstein, 1996). Curbing Inflationary Pressures Is Not Costless. The Tradeoff Between Growth And Inflation Is Well Known Ever Since The Famous Phillips Curve. The Recessionary Impact Of Imf Programs At Least In Their Early Stages Is Also Well Known (Haque And Khan, 1998). Studies Also Show That Disinflation Is Associated With Possibilities Of A Recession In United States Of America (Romer And Romer,1989) And Japan (Fernandez, 1992) Among Other Countries. Yet In Most Economies There Is No Clear Growth Target, Nor An Agency For Attaining It.