Working Paper
Households' Preferences Over Inflation and Monetary Policy Tradeoffs
Abstract: We document novel facts about US household preferences over inflation and monetary policy tradeoffs. Many households were attentive to news about monetary policy and to interest rates in 2023. The median household perceives the Federal Reserve's inflation objective to be 3 percent, but would prefer it to be lower. Quantifying the tradeoff between inflation and unemployment, we find an average acceptable sacrifice ratio of 0.6, implying that households are likely to find disinflation costly. Average preferences are well represented by a non-linear loss function with near equal weights on inflation and unemployment. These preferences also exhibit sizable demographic heterogeneity.
JEL Classification: D12; E52; E58;
https://doi.org/10.26509/frbc-wp-202512
Access Documents
File(s):
File format is text/html
https://doi.org/10.26509/frbc-wp-202512
Description: Persistent link
File(s):
File format is application/pdf
https://www.clevelandfed.org/-/media/project/clevelandfedtenant/clevelandfedsite/publications/working-papers/2025/wp2512.pdf
Description: Full text
Authors
Bibliographic Information
Provider: Federal Reserve Bank of Cleveland
Part of Series: Working Papers
Publication Date: 2025-04-24
Number: 25-12