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How does Monetary Policy affect welfare?

Lina El-Jahel, Robert MacCulloch and Hamed Shafiee ()
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Lina El-Jahel: University of Auckland Business School
Hamed Shafiee: New Zealand Productivity Commission

No 20_06, Working Papers from Motu Economic and Public Policy Research

Abstract: Models on the optimal design of monetary policy typically rely on a social welfare loss function defined over inflation and unemployment. Our estimates of such a function use measures of two different dimensions of well-being that have been distinguished by recent research. The first is Cantril’s ‘ladder-of-life’ question. The second captures the emotional quality of everyday experiences. Our Gallup World Poll sample includes one million people in 138 nations over 12 years. Unemployment and inflation reduce well-being, although the ratio of the size of the effect varies dramatically between 2 and 4.6, depending upon which dimension of well-being is chosen.

Keywords: Social welfare; well-being; inflation; unemployment. (search for similar items in EconPapers)
JEL-codes: E24 E31 E52 I31 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2020-06
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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