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Working Paper Series no. 163: Structural Assessment of the Sacrifice Ratio and the Euro Area (in French)

Abstract

In this paper, we seek to estimate the sacrifice ratio of the euro area using a small DSGE model where prices and wages are sticky. We estimate model's parameters so as to minimize the distance between VAR-based and model-based covariances of a set of variables. The estimated value of the sacrifice ratio reaches 1.30%. In a second step, we proceed to a set of counterfactual exercises in order to highlight the link between the sacrifice ratio and the degree of prices and wages stickiness. We obtain that a decrease of prices stickiness does not necessary result in a decrease of the sacrifice ratio. In addition, the sacrifice ratio rises with the degree of wage stickiness.

Jérôme Coffinet, Julien Matheron and Céline Poilly
January 2007

Classification JEL : E31, C51

Keywords : sacrifice ratio, sticky prices and sticky wages, DSGE model

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publication
Working Paper Series no. 163: Structural Assessment of the Sacrifice Ratio and the Euro Area (in French)
  • Published on 01/01/2007
  • EN
  • PDF (571.08 KB)
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Updated on: 06/12/2018 10:58