To calculate the sacrifice ratio, let us take 5.5% as the value of the U* (assumed unchanging) over this period. Also, let us take the starting (LRE) value of inflation to be 11.5% (3 year average of 1978 to 1980), which fell by 7 percentage points. The cumulative excess of U above U* over the decade was 18 percentage points. Thus, we can calculate the sacrifice ratio for URATE as 18 / 7, about 2.5. With an inverse lokun coefficient of 2.5, that implies a sacrifice ratio of 1 for GDP with regard to inflation.
