Households' Preferences Over Inflation and Monetary Policy Tradeoffs

Damjan Pfajfar and Fabian Winkler

No 25-12, Working Papers from Federal Reserve Bank of Cleveland

Abstract: We document novel facts about US household preferences over inflation and monetary policy tradeoffs. Many households were attentive to news about monetary policy and to interest rates in 2023. The median household perceives the Federal Reserve's inflation objective to be 3 percent, but would prefer it to be lower. Quantifying the tradeoff between inflation and unemployment, we find an average acceptable sacrifice ratio of 0.6, implying that households are likely to find disinflation costly. Average preferences are well represented by a non-linear loss function with near equal weights on inflation and unemployment. These preferences also exhibit sizable demographic heterogeneity.

Keywords: household survey; attention; inflation target; sacrifice ratio; dual mandate (search for similar items in EconPapers)
JEL-codes: D12 E52 E58 (search for similar items in EconPapers)
Pages: 55
Date: 2025-04-24
New Economics Papers: this item is included in nep-cba and nep-mon
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Working Paper: Households' Preferences Over Inflation and Monetary Policy Tradeoffs (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwq:99898

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DOI: 10.26509/frbc-wp-202512

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