Trade Openness, Capital Mobility, and the Sacrifice Ratio

Daniels, Joseph P.; VanHoose, David D.

doi:10.1007/s11079-008-9093-5

Cited by 11 publications

(14 citation statements)

References 27 publications

(34 reference statements)

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“…Recent examples of work in this area include Gruben and McLeod, 2002and Gruben and McLeod, 2004, Razin and Yuen (2002, Loungani et al (2001), and Razin and Loungani (2005). The extent to which trade openness and capital mobility exert independent effects on the output-inflation trade-off and inflation has been examined in recent work by Badinger (2009) and Daniels and VanHoose (2009b).…”

Section: Resultsmentioning

confidence: 99%

“…Badinger (2009) has obtained results consistent with this prediction in an analysis of data from 91 countries over the [1985][1986][1987][1988][1989][1990][1991][1992][1993][1994][1995][1996][1997][1998][1999][2000][2001][2002][2003][2004] interval. Recent work has added other elements that can impinge on the relationship between trade openness and the sacrifice ratio: political regime (Caporale and Caporale, 2008), progressivity of income taxation (Daniels and VanHoose, 2009a), capital mobility (Daniels and VanHoose, 2009b), labor-market structures (Bowdler and Nunziata, 2010), reliance on imported commodities in production (Pickering and Valle, 2012).…”

Section: Introductionmentioning

confidence: 99%

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Exchange-rate pass through, openness, and the sacrifice ratio

Daniels

VanHoose

2013

Journal of International Money and Finance

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Considerable recent work has reached mixed conclusions about whether and how globalization affects the inflation-output trade-off and suggests that the ultimate effect of openness on the output-inflation relationship is influenced by a variety of factors. In this paper, we consider the impact of exchange-rate pass through and examine how pass through conditions the effect of openness on the sacrifice ratio. We develop a simple theoretical model showing how the extent of both pass through and openness can interact to influence the output-inflation relationship. Next we empirically explore the nature of these two variables and their interaction. Results indicate that greater pass through increases the sacrifice ratio, that there is statistically significant interaction between pass through and openness, andonce the extent of pass through is taken into account alongside other factors that affect the sacrifice ratio, such as central bank independence-openness fails to exert an empirically robust effect on the sacrifice ratio.

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Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Exchange-rate pass through, openness, and the sacrifice ratio

Daniels

VanHoose

2013

Journal of International Money and Finance

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“…However, Ball () reports insignificant and inconsistent findings with respect to this factor, and most subsequent studies simply include it as a control variable . In more recent studies, Goncalves and Carvalho () find a negative relationship between the sacrifice ratio and initial inflation, while Daniels and VanHoose () find a positive one. This demonstrates the lack of clear consensus in the literature on the sign of the effect of initial inflation on the sacrifice ratio.…”

Section: Potential Determinants Of the Sacrifice Ratiomentioning

confidence: 97%

What Determines the Sacrifice Ratio? A Bayesian Model Averaging Approach

2019

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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.

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“…Following this contribution, Daniels et al (2005) and Daniels and VanHoose (2009) found that trade openness has a positive coe¢ cient in a regression explaining the sacri…ce ratio in 58 dis-in ‡ationary periods in various OECD countries from 1960 through the 1980s, on including an interaction term between it and central bank independence (CBI). Note that these authors use the term "sacri…ce ratio" as a synonym for the inverse of the slope of the Phillips curve.…”

Section: Introductionmentioning

confidence: 94%

The price-price Phillips curve in small open economies and monetary unions: theory and empirics

Vaona

2014

Int Econ Econ Policy

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper extends the efficiency wages/partially adaptive expectations Phillips curve, otherwise known as the price-price Phillips curve, from a closed economy context to an open economy one with both commodity trade and capital mobility. We also consider the case of a monetary union (a country) with two member states (regions). The theoretical results are a priori ambiguous. However, in the first place, on resorting to plausible numerical simulations, economic openness increases the reactiveness of inflation to the unemployment rate. In regard to a monetary union, the national unemployment multiplier in the aggregate Phillips curve decreases with the weight of the member state in aggregate employment and increases with that in output. Secondly, we show in two empirical applications that our calibration can provide informative priors for models to be estimated thanks to the Kalman filter. Terms of use: Documents in EconStor may

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Trade Openness, Capital Mobility, and the Sacrifice Ratio

Cited by 11 publications

References 27 publications

Exchange-rate pass through, openness, and the sacrifice ratio

Exchange-rate pass through, openness, and the sacrifice ratio

What Determines the Sacrifice Ratio? A Bayesian Model Averaging Approach

The price-price Phillips curve in small open economies and monetary unions: theory and empirics

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