Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/251305 
Year of Publication: 
2021
Series/Report no.: 
Sveriges Riksbank Working Paper Series No. 407
Publisher: 
Sveriges Riksbank, Stockholm
Abstract: 
We use a standard new Keynesian model to evaluate the cost of disinflation - measured by the sacrifice ratio, the central bank's loss function, and the welfare cost - in a small open economy vis-à-vis a closed economy. Disinflation is either more costly or less beneficial in the small open economy, but the results vary quantitatively depending on the measure and the economic environment. Optimised simple monetary policy rules imply that the relative weight on inflation stabilisation should be lower in the small open economy if the central bank minimises the loss function, but higher if it maximises welfare.
Subjects: 
Disinflation
sacrifice ratio
central bank's loss function
welfare cost
small open economy
new Keynesian model
optimised rules
imperfect credibility
JEL: 
E31
E5
F41
Document Type: 
Working Paper

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