The Poor and the Rich: Preferences Over Inflation and Unemployment

Abstract

What are the tradeoffs that the public is willing to accept between inflation and unemployment? We find that people dislike unemployment more than inflation. This is true for both Europe and Latin America. For the latter, the aversion to unemployment relative to inflation is much greater. Moreover, in both regions, the poor’s distaste for unemployment relative to inflation is significantly greater than that of the rich. This result contributes to the literature on the costs of inflation and questions the commonly held view that prescribes strong anti-inflationary postures as a way to implement policies consistent with the preferences of the poor.

Keywords: Monetary Policy, Central Banks, Inflation, Phillips Curve, Wellbeing, Income Distribution

JEL Classification: E24; E31; E52