Happiness, Contentment and Other Emotions for Central Banks

Rafael Di Tella and Robert MacCulloch

No 13622, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We show that data on satisfaction with life from over 600,000 Europeans are negatively correlated with the unemployment rate and the inflation rate. Our preferred interpretation is that this shows that emotions are affected by macroeconomic fluctuations. Contentment is, at a minimum, one of the important emotions that central banks should focus on. More ambitiously, contentment might be considered one of the components of utility. The results may help central banks understand the tradeoffs that the public is willing to accept in terms of unemployment for inflation, at least in terms of keeping the average level of one particular emotion (contentment) constant. An alternative use of these data is to study the particular channels through which macroeconomics affects emotions. Finally, work in economics on the design of monetary policy makes several assumptions (e.g., a representative agent, a summary measure of emotions akin to utility exists and that individuals only care about income and leisure) that can be used to interpret our results as weights in a social loss function.

JEL-codes: E0 E58 H0 (search for similar items in EconPapers)
Date: 2007-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: ME PE POL
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Citations: View citations in EconPapers (12)

Published as Di Tella, Rafael, and Robert MacCulloch. "Should Central Banks Maximize Happiness? Happiness, Contentment and Other Emotions for Central Banks." Chap. 6 in Policymaking Insights from Behavioral Economics, edited by Christopher L. Foote, Lorenz Goette, and Stephan Meier, 309–355. Boston, MA: Federal Reserve Bank of Boston, 2009.

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