Can a Disinflationary Policy Have a Differential Impact on Sectoral Output? A Look at Sacrifice Ratios in OECD and Non-OECD Countries

Abstract

This article examines the sectoral impact of disinflationary monetary policy by calculating the sacrifice ratios for several Organisation for Economic Co-operation and Development (OECD) and non-OECD countries. Sacrifice ratios calculated through the episode method reveal that disinflationary monetary policy has a differential impact across three sectors in both OECD and non-OECD countries. Of the three sectors, the industry and service sectors show significant output loss due to a tight monetary policy in OECD and non-OECD countries. But the agricultural sector shows a differential impact of disinflation policy: It shows a negative sacrifice ratio in OECD countries indicating that output growth is insignificantly affected by a tight monetary policy while non-OECD countries yield positive sacrifice ratios, suggesting that the output loss is significant. Further, it is observed that sacrifice ratios calculated from aggregate data are different from ratios calculated from sectoral data. JEL Classification: E52, E58, C14, O50.