How does monetary policy affect welfare? Some new estimates using data on life evaluation and emotional well-being

Lina El-Jahel, Robert MacCulloch and Hamed Shafiee

No 5, Working Papers from University of Auckland, Economic Policy Center (EPC)

Abstract: Models on the optimal design of monetary policy typically rely on a welfare loss function defined over unemployment and inflation. We estimate such a function using two different dimensions of well-being. The first evaluates how close one is to ‘the best possible life’ on a ladder scale. The second captures the emotional quality of everyday experiences. Our Gallup World Poll sample covers 1.5 million people in 141 nations from 2005-2019. Unemployment and inflation reduce well-being across all measures. The ratio of the unemployment-to-inflation effect is 6.2 for the ‘ladder-of-life’. It is lower for positive day-to-day experiences and higher for negative ones.

Keywords: Monetary Policy; Welfare; Life Evaluation; Emotional Well-Being; Unemployment; Inflation (search for similar items in EconPapers)
JEL-codes: E31 E52 I31 J64 (search for similar items in EconPapers)
Date: 2021-04-20
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Persistent link: https://EconPapers.repec.org/RePEc:cyc:wpaper:005

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