DETERMINATION OF THE SACRIFICE RATIO – THE COMPARISONS OF TURKEY, POLAND AND ITALY

Abstract

Although there is a common belief that the stabilization policy leads to output losses, alternative research puts forward no output losses at the end of the stabilization periods. This study aims to test whether for the 1990–2008 period anti-inflationary monetary policies which reduced the ongoing inflation to one digit rates, also led to agricultural output losses in Turkey for the same time period. Periodic sectoral sacrifice ratios will be calculated as a proxy for output losses. Model relies on the Phillips Curve model showing an alternative sacrifice between unemployment and inflation. Employed variables in the model are inflation and output losses in the agricultural sector. Output loss can be defined as the difference between potential and realized output differences in the sector examined. The sacrifice ratio will also be calculated by balancing the output loss in agriculture at the cost of lowering high inflation rates. Small sacrifice ratios for the post 2001 period for Turkey will show the success of monetary policy implementation of Turkish Central Bank. Alternatively, increases in the sacrifice ratio, at a stage where agricultural output and its potential disparity increases, will reflect the negligence of agricultural sector at the cost of stabilizing the economy. All these findings will be compared to Poland and Italy experiences.