Has the cost of fighting inflation fallen?

Gabriel De Kock and Tanya E. Ghaleb

No 9606, Research Paper from Federal Reserve Bank of New York

Abstract: During the 1980s, many OECD countries adopted labor-market policies designed to enhance wage flexibility and reduce unemployment. They also attempted to bolster the credibility of their anti-inflation measures through exchange rate and fiscal policies. These measures should have lowered the costs associated with fighting inflation. In this paper, we compare sacrifice ratio measures of the cost of disinflation in the most recent OECD recession with measures for the mid-seventies and early-eighties recessions. Surprisingly, in the overwhelming majority of OECD countries, the cost of reducing inflation has increased rather than declined. This conclusion stands, even if we take into account that it may be more expensive to fight inflation at lower inflation rates.

Keywords: Inflation (Finance); Organisation for Economic Co-operation and Development (search for similar items in EconPapers)
Date: 1996
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