Estimations of the Sacrifice Ratio Through Dual Regimes: An Evidence from Indian Perspective

Abstract

This investigation applies a VAR and an ARDL model to estimate the sacrifice ratio in the period of 1968–2018 subject to two regimes in India. The range for the sacrifice ratio mostly lies between [Formula: see text]0.5 and 1 for the period of 1968–2002 while also experiencing sensitive shifts of [Formula: see text]10 and 15. For the period of 2002–2018, the ratio lies between [Formula: see text]3 and 5. Furthermore, the long run estimate of the sacrifice ratio is [Formula: see text]2.35 and the short run is [Formula: see text]0.35. It is concluded that the period of 1968–2002 was more sensitive and more prone to disinflationary costs than gains while the period of 2002–2018 is more resilient and is characterized by both costs and gains to disinflation. The gains from disinflation for the period of 2002–2018 exceed those of the period of 1968–2002. In a comparative perspective, the costs to disinflation for India are much less than the usual range of the sacrifice ratio for advanced economies.