Happiness, Contentment and Other Emotions for Central Banks

Rafael Di Tella, Robert MacCulloch

NBER Working Paper No. 13622
Issued in November 2007
NBER Program(s):Monetary Economics, Public Economics, Political Economy

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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Document Object Identifier (DOI): 10.3386/w13622

Published: Di Tella, Rafael, and Robert MacCulloch. "Should Central Banks Maximize Happiness? Happiness, Contentment and Other Emotions for Central Banks." Chap. 6 in Policymaking Insights from Behavioral Economics, edited by Christopher L. Foote, Lorenz Goette, and Stephan Meier, 309–355. Boston, MA: Federal Reserve Bank of Boston, 2009.

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