Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Wellbeing
Stanford GSB Research Paper No. 1751
28 Pages Posted: 8 Aug 2002
Date Written: December 2002
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.
Keywords: happiness, subjective well-being, inflation, unemployment, welfare costs of business cycles, business cycles, volatility
JEL Classification: E30, E31, E32, E0, E5, E60, I31
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