The impact of restrictive monetary policy in emerging countries

Abstract

We study the sacrifice ratios for 465 disinflationary episodes in emerging market and developing economies using a dataset of 123 countries during 1979 to 2023. We find that average output cost of disinflation was significantly higher during COVID-19 period as compared to the previous disinflationary episodes, suggesting that supply side disruptions elevated the output costs of monetary tightening during the period. Further, we find that speed of disinflation and peak inflation significantly reduce sacrifice ratios suggesting a role for “cold turkey” approach as against the gradualism.