Public Demand for Low Inflation

Abstract

In this paper, survey data from 20 advanced economies are used to examine individual preferences about macroeconomic priorities. The analysis gives rise to three key findings. First, the distributive consequences of inflation and unemployment are key determinants of how individuals weigh different economic objectives. New evidence is provided that nominal asset owners are relatively more inflation averse, consistent with their exposure to unanticipated inflation. Second, the findings also suggest that economic context has a substantial impact on the public's economic objectives in a way broadly consistent with the specification of utility/loss functions in the theoretical political economy literature. Third, the results suggest that there is significant cross-country variation in inflation aversion, controlling for economic context and individual attributes and that some of this variation can be accounted for by national-level factors affecting the aggregate costs of inflation and unemployment. Cross-country variation in inflation aversion, controlling for economic context has significant implications for both optimal monetary policy making and for models of alternative institutional frameworks for policy-making.