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Navigating the Well-Being Effects of Monetary Policy: Evidence from the Euro Area

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  • Mehdi El Herradi
  • Aurélien Leroy

Abstract

Central banks have recently adjusted their communication strategies to enhance engagement with the general public, yet there is limited understanding of public sentiment regarding monetary policy announcements. This paper investigates whether monetary policy announcements influence household (subjective) well-being in Germany over the period 2002-2018 and finds that tightening surprises reduce life satisfaction. Notably, the impact of a one standard deviation monetary policy shock on well-being is equivalent to a 4% decline in household income. This effect is particularly pronounced among middle-aged individuals and those belonging to the middle-class.

Suggested Citation

  • Mehdi El Herradi & Aurélien Leroy, 2023. "Navigating the Well-Being Effects of Monetary Policy: Evidence from the Euro Area," IMF Working Papers 2023/248, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2023/248
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    Keywords

    Monetary policy; Subjective Well-Being; Survey data; Euro Area; monetary policy announcement; standard deviation monetary policy shock; well-being effect; IMF working paper 23/248; monetary policy surprise; Income; Aging; Asset prices; Global;
    All these keywords.

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