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Jealousy and monetary policy

Authors
Publisher
Elsevier Inc.
Publication Date
Volume
37
Issue
5
Identifiers
DOI: 10.1016/j.socec.2007.12.009
Keywords
  • Monetary Policy
  • Jealousy
  • Consumption Externality
Disciplines
  • Economics

Abstract

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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