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.

A recent article by Caporale and Caporale (2008, this Journal) provides an important finding on the determinants of the sacrifice ratio: central bank independence is not a determining factor for the sacrifice ratio when political regimes and other factors are controlled for. Our replication study shows that their result is driven by errors in the data. With correct data, it can be found that central bank independence is positively and significantly correlated with the sacrifice ratio, even when the nature of the political regime is controlled for.JEL codes: E31, E52, F41 Keywords: central bank independence, openness, political regimes, sacrifice ratio. AN INCREASING NUMBER of studies have examined what accounts for the output cost associated with disinflation (i.e., the sacrifice ratio). One of the potential determining factors that draw special attention is central bank independence. There are two possible channels through which a degree of central bank independence may affect the sacrifice ratio. The first one is a credibility channel: disinflation policies of more independent central banks can be more credible and, therefore, can be conducted at a lower output cost. The second channel is associated with the nominal wage contracts in the economy. Walsh (1995) develops a theoretical We would like to thank Tony Caporale for providing us with the data and Jeffrey Sheen for useful comments. We are also grateful to two anonymous referees for valuable suggestions.