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Jealousy and monetary policy

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  • Tervala, Juha

Abstract

The purpose of this paper is to examine the implications of jealousy for the welfare effects of monetary policy. Jealousy implies that consumption is like pollution: overconsumption may occur because households do not internalize the costs of their consumption to others. This externality opens the door for a beneficial monetary policy intervention. I show that the welfare effects of monetary policy depend on jealousy, the monopolistic distortion and the utility of real balances. If households are "too jealous," a rise in the money supply reduces welfare by increasing consumption that is already inefficiently high.

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  • Tervala, Juha, 2008. "Jealousy and monetary policy," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(5), pages 1797-1802, October.
    • Handle: RePEc:eee:soceco:v:37:y:2008:i:5:p:1797-1802
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    References listed on IDEAS

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    1. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, vol. 93(1), pages 423-428, March.
    2. Pierdzioch, Christian, 2003. "Keeping Up with the Joneses: Implications for the Welfare Effects of Monetary Policy in Open Economies," Kiel Working Papers 1166, Kiel Institute for the World Economy (IfW Kiel).
    3. Jang-Ting Guo, 2005. "Tax Policy Under Keeping Up with the Joneses and Imperfect Competition," Annals of Economics and Finance, Society for AEF, vol. 6(1), pages 25-36, May.
    4. Harald Uhlig & Lars Ljungqvist, 2000. "Tax Policy and Aggregate Demand Management under Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 90(3), pages 356-366, June.
    5. Pierdzioch, Christian & Yener, Serkan, 2004. "On the Welfare Effects of Monetary Policy When Households Try to Keep Up with the Rest of the World," Kiel Working Papers 1198, Kiel Institute for the World Economy (IfW Kiel).
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    Cited by:

    1. Tervala, Juha, 2012. "Keeping up with the Joneses and the welfare effects of monetary policy," Journal of Economic Psychology, Elsevier, vol. 33(1), pages 104-111.
    2. Chi‐Ting Chin & Ching‐Chong Lai & Ming‐Ruey Kao, 2010. "Welfare‐Maximising Pricing In A Macroeconomic Model With Imperfect Competition And Consumption Externalities," Australian Economic Papers, Wiley Blackwell, vol. 49(3), pages 200-208, September.
    3. Alejandro SALAZAR-ADAMS & Nicolás PINEDA-PABLOS, 2010. "Policies for Meeting Future Water Needs in Mexican Cities," EcoMod2010 259600147, EcoMod.

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