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How Does Monetary Policy Affect Welfare? Some New Estimates Using Data on Life Evaluation and Emotional Well‐Being

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  • LINA EL‐JAHEL
  • ROBERT MACCULLOCH
  • HAMED SHAFIEE

Abstract

Models on the optimal design of monetary policy typically rely on a welfare loss function defined over unemployment and inflation. We estimate such a function using two different dimensions of well‐being. The first evaluates how close one is to “the best possible life” on a ladder scale. The second captures the emotional quality of everyday experiences. Our Gallup World Poll sample covers 1.5 million people in 141 nations from 2005 to 2019. Unemployment and inflation reduce well‐being across all measures. The ratio of the unemployment‐to‐inflation effect is 6.2 for the “Ladder‐of‐Life.” It is lower for positive day‐to‐day experiences and higher for negative ones.

Suggested Citation

  • Lina El‐Jahel & Robert Macculloch & Hamed Shafiee, 2023. "How Does Monetary Policy Affect Welfare? Some New Estimates Using Data on Life Evaluation and Emotional Well‐Being," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(8), pages 2001-2025, December.
    • Handle: RePEc:wly:jmoncb:v:55:y:2023:i:8:p:2001-2025
    DOI: 10.1111/jmcb.13000
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