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Does inflation matter? The influence of perceived price changes on well-being

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  • Łukasz Below

Abstract

I confirm the foregoing state of the art for inflation and well-being correlationwhile filling the gap in the literature and estimating the effects of individuals’ inflationperception on well-being. I also discover the significant heterogeneity in attitudestoward inflation, inflation perception, and unemployment among Europeancountries. Inflation measured by official statistics, as well as inflation perceived byconsumers, has a significant negative influence on people’s well-being. The relationwas confirmed by regressing reported life satisfaction on a wide set of individualcharacteristics, as well as macroeconomic variables. While the inflation perceptioninfluence on well-being in Eastern Europe is higher than the influence of HICP, forWestern Europe, it is the opposite. Both country groups also differ in terms of themarginal rate of substitution between inflation and unemployment – the effects ofhigher unemployment are more severe in comparison to the influence of inflation inWestern Europe.

Suggested Citation

  • Łukasz Below, 2023. "Does inflation matter? The influence of perceived price changes on well-being," KAE Working Papers 2023-086, Warsaw School of Economics, Collegium of Economic Analysis.
    • Handle: RePEc:sgh:kaewps:2023086
    DOI: 10.33119/kaewps2023086
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    File URL: https://hdl.handle.net/20.500.12182/1145
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E7 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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