What is the ‘Sacrifice Ratio’
The sacrifice ratio is an economic ratio that measures the costs associated with slowing down economic output to change inflationary trends. The ratio is calculated by taking the cost of lost production and dividing it by the percentage change in inflation, and its quotient gives the loss of output per 1% change in inflation:
Explaining ‘Sacrifice Ratio’
If inflation is becoming a problem, central banks will try to cool economic growth in a bid to reduce inflationary pressures. However, this reduction in output costs the economy in the short term, and the sacrifice ratio tries to measure that cost.
Further Reading
- Disinflation in a DSGE perspective: Sacrifice ratio or welfare gain ratio? – www.sciencedirect.com [PDF]
- Monetary policy transparency, inflation and the sacrifice ratio – onlinelibrary.wiley.com [PDF]
- Central bank independence, speed of disinflation and the sacrifice ratio – link.springer.com [PDF]
- Sacrifice Ratios with Long‐Lived Effects – onlinelibrary.wiley.com [PDF]
- Exchange-rate pass through, openness, and the sacrifice ratio – www.sciencedirect.com [PDF]
- Sacrifice ratio dispersion within the Euro Zone: what can be learned about implementing a single monetary policy? – www.tandfonline.com [PDF]
- Central bank independence, disinflations, and the sacrifice ratio – journals.sagepub.com [PDF]
- Determinants of the sacrifice ratio: Evidence from OECD and non-OECD countries – www.sciencedirect.com [PDF]
