Publication:
Tradeoffs over Rate Cycles: Activity, Inflation and the Price Level

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dc.contributor.authorForbes, Kristin
dc.contributor.authorHa, Jongrim
dc.contributor.authorKose, M. Ayhan
dc.date.accessioned2025-05-23T21:39:47Z
dc.date.available2025-05-23T21:39:47Z
dc.date.issued2025-05-23
dc.description.abstractCentral banks often face tradeoffs in how their monetary policy decisions impact economic activity (including employment), inflation and the price level. This paper assesses how these tradeoffs have evolved over time and varied across countries, with a focus on understanding the post-pandemic adjustment. To make these comparisons, we compile a cross-country, historical database of “rate cycles” (i.e., easing and tightening phases for monetary policy) for 24 advanced economies from 1970 through 2024. This allows us to quantify the characteristics of interest rate adjustments and corresponding macroeconomic outcomes and tradeoffs. We also calculate Sacrifice Ratios (output losses per inflation reduction) and document a historically low “sacrifice” during the post-pandemic tightening. This popular measure, however, ignores adjustments in the price level—which increased by more after the pandemic than over the past four decades. A series of regressions and simulations suggest monetary policy (and particularly the timing and aggressiveness of rate hikes) play a meaningful role in explaining these tradeoffs and how adjustments occur during tightening phases. Central bank credibility is the one measure we assess that corresponds to only positive outcomes and no difficult tradeoffs.en
dc.identifierhttp://documents.worldbank.org/curated/en/099153405222510768
dc.identifier.doihttps://doi.org/10.1596/1813-9450-11130
dc.identifier.urihttps://hdl.handle.net/10986/43243
dc.languageEnglish
dc.language.isoen_US
dc.publisherWashington, DC: World Bank
dc.relation.ispartofseriesPolicy Research Working Paper; 11130
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttps://creativecommons.org/licenses/by/3.0/igo/
dc.subjectMONETARY POLICY
dc.subjectINTEREST RATES
dc.subjectCENTRAL BANK
dc.subjectSACRIFICE RATIO
dc.subjectBUSINESS FLUCTUATIONS
dc.subjectPRICES
dc.subjectEMPLOYMENT
dc.titleTradeoffs over Rate Cyclesen
dc.title.subtitleActivity, Inflation and the Price Levelen
dc.typeWorking Paper
dspace.entity.typePublication
okr.date.disclosure2025-05-23
okr.date.doiregistration2025-05-25T02:17:04.244384Z
okr.date.lastmodified2025-05-23T20:02:37Zen
okr.doctypePolicy Research Working Paper
okr.doctypePublications & Research
okr.docurlhttp://documents.worldbank.org/curated/en/099153405222510768
okr.guid099153405222510768
okr.identifier.docmidIDU-2dec084f-a716-48bc-88e2-ad3fbc333ec6
okr.identifier.doi10.1596/1813-9450-11130
okr.identifier.externaldocumentum40015102
okr.identifier.internaldocumentum40015102
okr.identifier.reportWPS11130
okr.import.id7465
okr.importedtrueen
okr.language.supporteden
okr.pdfurlhttps://documents.worldbank.org/curated/en/099153405222510768/pdf/IDU-2dec084f-a716-48bc-88e2-ad3fbc333ec6.pdfen
okr.region.geographicalWorld
okr.topicMacroeconomics and Economic Growth::Inflation
okr.topicMacroeconomics and Economic Growth::Business Cycles and Stabilization Policies
okr.topicFinance and Financial Sector Development::Banks & Banking Reform
okr.topicMacroeconomics and Economic Growth::Fiscal & Monetary Policy
okr.topicMacroeconomics and Economic Growth::Economic Growth
okr.unitProspects Group (DECPG)
relation.isAuthorOfPublicationac9fefe8-9d4d-555d-bb68-f056fd7a3790
relation.isAuthorOfPublication.latestForDiscoveryac9fefe8-9d4d-555d-bb68-f056fd7a3790
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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