How Does Monetary Policy Affect Welfare? Some New Estimates Using Data on Life Evaluation and Emotional Well‐Being

Models on the optimal design of monetary policy typically rely on a welfare loss function defined over unemployment and inflation. We estimate such a function using two different dimensions of well-being. The first evaluates how close one is to ‘the best possible life’ on a ladder scale. The second captures the emotional quality of everyday experiences. Our Gallup World Poll sample covers 1.5 million people in 141 nations from 2005-2019. Unemployment and inflation reduce well-being across all measures. The ratio of the unemployment-to-inflation effect is 6.2 for the ‘ladderof-life’. It is lower for positive day-to-day experiences and higher for negative ones. ______________ * Lina El-Jahel, Address: 12 Grafton Rd, Auckland 1010, New Zealand; email: l.eljahel@auckland.ac.nz ** Robert MacCulloch, email: r.macculloch@auckland.ac.nz *** Hamed Shafiee, Address: Level 15 Fujitsu Tower, 141 The Terrace, Wellington 6011, New Zealand; email: hamed.shafiee@productivity.govt.nz