The Poor and the Rich: Preferences Over Inflation and Unemployment

What are the tradeoffs that the public is willing to accept between inflationand unemployment? We find that people dislike unemployment morethan inflation. This is true both for Europe and for Latin America. In thelatter, the... [ view full 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 both for Europe and for Latin America. In the
latter, the aversion to unemployment relative to inflation is much larger,
a surprising result given that the region has suffered repeated episodes of
high inflation. Moreover, in both regions the poor’s distaste for
unemployment relative to inflation is significantly larger than the rich’s.
This result contributes to the literature on the costs of inflation and adds a
new perspective to the commonly held view that Central Banks should
fight inflation strongly because that is what the poor would like from
them.