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Real Income, Unemployment and Subjective Well-Being: Revisiting the Costs and Benefits of Inflation Reduction in Canada

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Author Info
Roderick Hill
Abstract

The benefits of disinflation have often been thought of as the discounted value of the net income increases that might result. This weighs lower incomes from higher short-term unemployment against expected long-term income increases. Such measures of economic welfare typically find large net gains from disinflation. However, studies of subjective well-being show that this overstages gains in individuals' well-being because unemployment has significant non-monetary costs, while higher average incomes may not be associated with significant increases in average well-being. A simulation of the 1990s disinflation in Canada shows that a net loss in average well-being could result. Only if lower inflation raises well-being directly are significant net gains possible.

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File URL: http://economics.ca/cgi/jab?journal=cpp&view=v26n4/CPPv26n4p399.pdf
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Publisher Info
Article provided by University of Toronto Press in its journal Canadian Public Policy.

Volume (Year): 26 (2000)
Issue (Month): 4 (December)
Pages: 399-414
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Handle: RePEc:cpp:issued:v:26:y:2000:i:4:p:399-414

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    Other versions:
  2. Oswald, Andrew, 1997. "Happiness and Economic Performance," The Warwick Economics Research Paper Series (TWERPS) 478, University of Warwick, Department of Economics. [Downloadable!]
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  3. Wayne Simpson & Norman E. Cameron & Derek Hum, 1998. "Is Hypoinflation Good Policy?," Canadian Public Policy, University of Toronto Press, vol. 24(3), pages 291-308, September. [Downloadable!] (restricted)
  4. Ragan, Christopher, 1998. "On the Believable Benefits of Low Inflation," Working Papers 98-15, Bank of Canada. [Downloadable!]
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  7. Robert J. Shiller, 1996. "Why Do People Dislike Inflation?," Cowles Foundation Discussion Papers 1115, Cowles Foundation, Yale University. [Downloadable!]
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  8. Pierre Fortin, 1996. "The Great Canadian Slump," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 761-87, November. [Downloadable!] (restricted)
  9. Di Tella, Rafael & MacCulloch, Robert J. & Oswald, Andrew J., 2001. "The Macroeconomics of Happiness," The Warwick Economics Research Paper Series (TWERPS) 615, University of Warwick, Department of Economics. [Downloadable!]
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  10. Daniel L. Thornton, 1996. "The costs and benefits of price stability: an assessment of Howitt's rule," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 23-38. [Downloadable!]
  11. Martin S. Feldstein, 1997. "The Costs and Benefits of Going from Low Inflation to Price Stability," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 123-166 National Bureau of Economic Research, Inc. [Downloadable!]
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  12. Winkelmann, Liliana & Winkelmann, Rainer, 1998. "Why Are the Unemployed So Unhappy? Evidence from Panel Data," Economica, London School of Economics and Political Science, vol. 65(257), pages 1-15, February. [Downloadable!] (restricted)
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