According to Okun's Misery Index, which looks at the publics moods during different economic times, unemployment and inflation are considered to be equally important. Recently, a few economists have come out against this and have compiled studies to re-evaluate this measurement. They have found that unemployment is in fact four times more important to the average person than high inflation. This could change the way central banks shape monetary policy. Before, they use to set a target for inflation and would fight to maintain that target. With this new information, central banks may be more willing to take on extra inflation to fight unemployment.
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/04/12/which-makes-us-more-miserable-inflation-or-unemployment/
This makes sense that the public would be more apprehensive about unemployment than inflation. Having money of less value is better than having no job - not making money at all. However, if the FED changes the way they look at and deal with monetary policy, potentially lowering unemployment but having more inflation, people may start complaining about inflation more than unemployment. Under different circumstances, the importance of the two factors may change. Is it worth it for the FED to change their ways? Would it really benefit the economy overall?
ReplyDelete