INFLATION HISTORY AND THE SACRIFICE RATIO: EPISODE‐SPECIFIC EVIDENCE

Takashi Senda · Julie K. Smith

19 citations0/0 files storedContemporary Economic Policy

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Monetary Policy and Economic Impact Economic Theory and Policy Unemployment and Economic Growth

Abstract

This article examines whether episode‐specific analysis can show a negative relationship between inflation and the slope of the Phillips curve that has been found in cross‐country analysis. While the relationship between inflation and the Phillips curve slope is widely accepted from cross‐country analysis, it has remained unproven in previous episode‐specific studies. By defining inflation history as a weighted average of past inflation, this study finds a negative effect of inflation history on the sacrifice ratio, which is what is expected from the cross‐country analysis. The negative relationship does not disappear even after including other conventional determinants of the sacrifice ratio. (JEL E52, E31)

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References

1985Economics of Worldwide Stagflation 1993Openness and Inflation: Theory and Evidence 1988The New Keynesian Economics and the Output-Inflation Trade-Off 1990Credible Disinflation with Staggered Price Setting 1996Endogenous Price Stickiness and Business Cycle Persistence 2004Endogenous Time-Dependent Rules and Inflation Inertia 2000Endogenous Price Stickiness and Business Cycle Persistence 1991On the Stubbornness of Sticky Prices

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