Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Well‐Being

This paper analyses the effects of business cycle volatility on measures of subjective well‐being, including self‐reported happiness and life satisfaction. I find robust evidence that high inflation and, to a greater extent, unemployment lower perceived well‐being. Greater macroeconomic volatility also undermines well‐being. These effects are moderate but important: eliminating unemployment volatility would raise well‐being by an amount roughly equal to that from lowering the average level of unemployment by a quarter of a percentage point. The effects of inflation volatility on well‐being are less easy to detect and are likely smaller.