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Happiness, Contentment and Other Emotions for Central Banks

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  • Rafael Di Tella
  • Robert MacCulloch

Abstract

We show that data on satisfaction with life from over 600,000 Europeans are negatively correlated with the unemployment rate and the inflation rate. Our preferred interpretation is that this shows that emotions are affected by macroeconomic fluctuations. Contentment is, at a minimum, one of the important emotions that central banks should focus on. More ambitiously, contentment might be considered one of the components of utility. The results may help central banks understand the tradeoffs that the public is willing to accept in terms of unemployment for inflation, at least in terms of keeping the average level of one particular emotion (contentment) constant. An alternative use of these data is to study the particular channels through which macroeconomics affects emotions. Finally, work in economics on the design of monetary policy makes several assumptions (e.g., a representative agent, a summary measure of emotions akin to utility exists and that individuals only care about income and leisure) that can be used to interpret our results as weights in a social loss function.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13622.

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Date of creation: Nov 2007
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Publication status: published as Di Tella, Rafael, and Robert MacCulloch. "Should Central Banks Maximize Happiness? Happiness, Contentment and Other Emotions for Central Banks." Chap. 6 in Policymaking Insights from Behavioral Economics, edited by Christopher L. Foote, Lorenz Goette, and Stephan Meier, 309–355. Boston, MA: Federal Reserve Bank of Boston, 2009.
Handle: RePEc:nbr:nberwo:13622

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Cited by:
  1. Carlos Medina & Leonardo Morales & Jairo Nuñez, 2008. "Quality of Life in Urban Neighborhoods in Colombia:The Cases of Bogotá and Medellín," BORRADORES DE ECONOMIA 005126, BANCO DE LA REPÚBLICA.
  2. Blanchflower, David G., 2008. "International Evidence on Well-being," IZA Discussion Papers 3354, Institute for the Study of Labor (IZA).
  3. Becchetti, Leonardo & Castriota, Stefano & Giuntella, Giovanni Osea, 2010. "The effects of age and job protection on the welfare costs of inflation and unemployment," European Journal of Political Economy, Elsevier, vol. 26(1), pages 137-146, March.
  4. Rafael Di Tella & Robert MacCulloch, 2008. "Happiness Adaptation to Income beyond "Basic Needs"," NBER Working Papers 14539, National Bureau of Economic Research, Inc.
  5. SARRACINO Francesco, 2010. "Determinants of Subjective Well-Being in High and Low Income Countries: do happiness equations differ across countries?," CEPS/INSTEAD Working Paper Series 2010-15, CEPS/INSTEAD.
  6. Stracca, Livio, 2013. "Financial imbalances and household welfare: empirical evidence from the EU," Working Paper Series 1543, European Central Bank.

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