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How does monetary policy affect welfare? Some new estimates using data on life evaluation and emotional well-being

Author

Listed:
  • 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 2005-2019. 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, 2021. "How does monetary policy affect welfare? Some new estimates using data on life evaluation and emotional well-being," Working Papers 005, University of Auckland, Economic Policy Center (EPC).
    • Handle: RePEc:cyc:wpaper:005
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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