Happiness, Contentment and Other Emotions for Central Banks
National Bureau of Economic Research, 2007 - Banks and banking, Central - 41 pages
We show that data on satisfaction with life from over 600,000 Europeans are negatively correlated with the unemployment rate and the inflation rate. Our preferred interpretation is that this shows that emotions are affected by macroeconomic fluctuations. Contentment is, at a minimum, one of the important emotions that central banks should focus on. More ambitiously, contentment might be considered one of the components of utility. The results may help central banks understand the tradeoffs that the public is willing to accept in terms of unemployment for inflation, at least in terms of keeping the average level of one particular emotion (contentment) constant. An alternative use of these data is to study the particular channels through which macroeconomics affects emotions. Finally, work in economics on the design of monetary policy makes several assumptions (e.g., a representative agent, a summary measure of emotions akin to utility exists and that individuals only care about income and leisure) that can be used to interpret our results as weights in a social loss function.
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16 OECD Countries age squared Alesina Andrew Oswald assumptions average level behavioral economics business cycles capture Central Banks coefficient on Inflation contentment data contentment scores correlated costs of business costs of inflation country year level Country-year clusters Dependent variable discussion Dummy Variables Economics economists effects Ekman equation errors in parentheses estimates Euro-barometer question example fairly satisfied focus four possible answers happiness scores including self employed individuals inflation and unemployment Inflation rate interpersonal comparisons interpretation keeping home Labor Economics MacCulloch 2005 macroeconomic fluctuations macroeconomists measure of emotions measures of utility models monetary policy NBER non-linearities Ordered probit regressions output gap particular Paul Ekman percentage point Personal Characteristics positive emotions Pseudo R2 Rafael Di Tella Real Business Cycle regressions with robust representative agent robust standard errors Rotemberg and Woodford sample shocks Stanley Fischer survey Tella and MacCulloch unemployment and inflation Variables Unemployment rate welfare loss function World Values Survey