Should Central Banks Target Happiness?: Evidence from Latin America

It has become common wisdom amongst monetary policy professionals that central banks in Latin America should adopt inflation targeting. Pure inflation targeting implicitly assumes a social loss welfare function dependent on only inflation. In this working paper, using subjective well-being survey data for Latin America the authors present evidence that both inflation and unemployment reduce wellbeing; where the cost of inflation in terms of unemployment, hence the relative size of the weights in a social well-being function, is about one to eight, almost double of that found for OECD countries. The evidence presented in this paper, combined with the low frequency of happiness data, may not be sufficiently convincing for central banks to adopt happiness-targeting rule. However, happiness data would be useful to inform policy makers regarding the optimal disinflation policy or at least allow consciousness of the potential discontent of different sub-groups of the population of different disinflation strategies.

Bibliographic Details

Main Author:	Inter-American Development Bank
Other Authors:	Pavel Luengas
Format:	Working Papers biblioteca
Language:	English
Published:	Inter-American Development Bank
Subjects:	Income, Consumption and Saving, Workforce and Employment, C30 - Multiple or Simultaneous Equation Models • Multiple Variables: General, D31 - Personal Income Wealth and Their Distributions, D60 - Welfare Economics: General, I31 - General Welfare Well-Being, O54 - Latin America • Caribbean, WP-02/09,
Online Access:	http://dx.doi.org/10.18235/0011178 https://publications.iadb.org/en/should-central-banks-target-happiness-evidence-latin-america
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