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What Determines the Sacrifice Ratio? A Bayesian Model Averaging Approach
Author(s) -
Katayama Hajime,
Ponomareva Natalia,
Sharma Malvin
Publication year - 2019
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12304
Subject(s) - disinflation , econometrics , economics , argument (complex analysis) , bayesian probability , variable (mathematics) , sacrifice , statistics , empirical research , mathematics , keynesian economics , medicine , geography , monetary policy , mathematical analysis , archaeology
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.