Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/233281 
Authors: 
Year of Publication: 
2011
Series/Report no.: 
Discussion paper No. 65
Publisher: 
Aboa Centre for Economics (ACE), Turku
Abstract: 
This paper examines the implications of "keeping up with the Joneses" preferences (jealousy) for the welfare effects of monetary policy. I develop a New Keynesian model, where households are jealous and the central bank follows the Taylor rule. I show that the welfare effects of monetary policy over time depend significantly on the relative strength of the consumption externality caused by jealousy and the monopolistic distortion. If jealousy (the monopolistic distortion) dominates, then a decrease in the interest rate reduces (increases) welfare in the short run, but increases (reduces) welfare in the medium run.
Subjects: 
Monetary policy
jealousy
consumption externality
JEL: 
E40
E50
E52
Document Type: 
Working Paper

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