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

  • Roderick Hill
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    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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    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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    1. David G. Blanchflower & Andrew J. Oswald, 2000. "Well-Being Over Time in Britain and the USA," NBER Working Papers 7487, National Bureau of Economic Research, Inc.
    2. Oswald, A.J., 1997. "Happiness and Economic Performance," Papers 18, Centre for Economic Performance & Institute of Economics.
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    4. Di Tella, R. & MacCulloch, R.J.: Oswald, A.J., 1997. "The Macroeconomics of Happiness," Papers 19, Centre for Economic Performance & Institute of Economics.
    5. Martin Feldstein, 1996. "The Costs and Benefits of Going from Low Inflation to Price Stability," NBER Working Papers 5469, National Bureau of Economic Research, Inc.
    6. Ragan, Christopher, 1998. "On the Believable Benefits of Low Inflation," Working Papers 98-15, Bank of Canada.
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    8. Robert J. Shiller, 1996. "Why Do People Dislike Inflation?," Cowles Foundation Discussion Papers 1115, Cowles Foundation for Research in Economics, Yale University.
    9. Guy Debelle, 1996. "The Ends of Three Small Inflations: Australia, New Zealand and Canada," Canadian Public Policy, University of Toronto Press, vol. 22(1), pages 56-78, March.
    10. 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.
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