NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Wellbeing

Justin Wolfers

NBER Working Paper No. 9619*
Issued in April 2003
NBER Program(s):   EFG    LS

This paper analyzes the effects of business cycle volatility on measures of subjective well-being, including self-reported happiness and life satisfaction. I find robust evidence that high inflation and, to a greater extent, unemployment lower perceived well-being. Greater macroeconomic volatility also undermines well-being. These effects are moderate but important: eliminating unemployment volatility would raise well-being by an amount roughly equal to that from lowering the average level of unemployment by a quarter of a percentage point. The effects of inflation volatility on well-being are less easy to detect and are likely smaller.

*Published: Wolfers, Justin. "Is Business Cycle Volatility Costly? Evidence From Surveys Of Subjective Well-Being," International Finance, 2003, v6(1,Apr), 1-26.

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