This paper estimates the short-run output cost of disinflationary policy, usually referred to as the sacrifice ratio, in the Korean economy from structural vector error-correction models. Our analysis that extends simple first difference structural VA...
This paper estimates the short-run output cost of disinflationary policy, usually referred to as the sacrifice ratio, in the Korean economy from structural vector error-correction models. Our analysis that extends simple first difference structural VAR models into the structural vector error-correction models contrasts well with structural VAR models of Cecchetti and Rich(1999) in the following two respects. Firstly, the size of the Korean sacrifice ratio is stable in all models ranging from 4.6 to 5.5. Secondly, the 90% confidence interval from the Monte Carlo simulations does not cover zero for the point estimate of the sacrifice ratio in each model implying that the sacrifice ratio is precisely estimated.