The Poor and the Rich: Preferences over Inflation and Unemployment

Abstract

What are the tradeoffs that the public is willing to accept between inflation and unemployment? We find that people dislike extra points of unemployment more than extra points of inflation. This is true for both Europe and Latin America. For the latter, the aversion to unemployment relative to inflation is much greater. Moreover, in both regions, the poor's distaste for extra points of unemployment relative to inflation is significantly greater than that of the rich. This result contributes to the literature on the costs of inflation and questions the commonly held view that prescribes strong anti‐inflationary postures as a way to implement policies consistent with the preferences of the poor.

Navigating the Well-Being Effects of Monetary Policy: Evidence from the Euro Area

“…This expansionary shock would induce a surge in in ation, which has opposing e ects on well-being. However, this standard tradeo of macroeconomics is largely in favour of employment for individuals since unemployment depresses Subjective Well-Being (SWB) more than in ation (Blanch ower et al, 2014;Di Tella and MacCulloch, 2008;Di Tella et al, 2001;Hofstetter and Rosas, 2021). Finally, we also nd the wealth channel in the literature, through which the increase in asset prices resulting from decreased interest rates can lead households to spend more and feel happier.…”