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How does Monetary Policy affect welfare?

Author

Listed:
  • Lina El-Jahel

    (University of Auckland Business School)

  • Robert MacCulloch

    (University of Auckland Business School)

  • Hamed Shafiee

    (New Zealand Productivity Commission)

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.

Suggested Citation

  • Lina El-Jahel & Robert MacCulloch & Hamed Shafiee, 2020. "How does Monetary Policy affect welfare?," Working Papers 20_06, Motu Economic and Public Policy Research.
    • Handle: RePEc:mtu:wpaper:20_06
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    File URL: https://motu-www.motu.org.nz/wpapers/20_06.pdf
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    References listed on IDEAS

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    Cited by:

    1. Blanchflower, David G. & Bryson, Alex, 2023. "Were COVID and the Great Recession Well-Being Reducing?," IZA Discussion Papers 16355, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Social welfare; well-being; inflation; unemployment.;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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