Determinants of Trust in the European Central Bank

Justina A. V. Fischer · Volker Hahn

38 citations0/0 files storedRePEc: Research Papers in Economics

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Monetary Policy and Economic Impact European Union Policy and Governance European Monetary and Fiscal Policies

Abstract

In this paper we study the determinants of citizensï¿½ trust in the European Central Bank during the start-up phase from 1999-2004. Using a country panel based on the Eurobarometer survey, we find that higher inflation rates reduce trust. Thus people appear to evaluate the performance of the ECB on the basis of its success in achieving its primary objective, namely price stability. However, national income also has a strong impact, which poses a dilemma to the ECB, as it cannot increase economic growth in the long run. Unemployment does not have a significant impact on trust in the ECB, while unemployment spending exerts a trust-building impact. Possibly, automatic stabilizers serve as substitutes for ECB interventions, which would lower peopleï¿½s trust. Interestingly, active labor market policies, which can be interpreted as proxies for the publicï¿½s perception of the urgency of the problem of high unemployment, tend to decrease trust.

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References

1977Rules Rather than Discretion: The Inconsistency of Optimal Plans 1999The Science of Monetary Policy: A New Keynesian Perspective 1985The Optimal Degree of Commitment to an Intermediate Monetary Target 1983Rules, discretion and reputation in a model of monetary policy 1989Politics and Business Cycles in Industrial Democracies 2006Institutional Trust and Subjective Well‐Being across the EU 2006How transparant are Central Banks?1999Alice in Euroland

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