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Social Trust and Central-Bank Independence

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  • Berggren, Niclas

    ()
    (Research Institute of Industrial Economics (IFN))

  • Daunfeldt, Sven-Olof

    ()
    (HUI Research AB)

  • Hellström, Jörgen

    (Umeå School of Business and Economics)

Abstract

Central banks have been made more independent in many countries. A common rationale has been the existence of a credibility (or lack-of-trust) problem for monetary policy. This indicates a possible and until now unexplored link between social trust and central-bank independence. Our empirical findings, based on data from 149 countries, confirm that there is such a link, in the form of a u-shaped relationship. We suggest that two factors help explain this finding: the need for this kind of reform and the ability with which it can be implemented. At low trust levels, the need for central-bank independence is strong enough to dominate the low ability; at high trust levels the ability for reform is high and dominates the low need; at intermediate trust levels there is neither need nor ability strong enough to generate very independent central banks.

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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 920.

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Length: 25 pages
Date of creation: 23 May 2012
Date of revision:
Publication status: Forthcoming as Berggren, Niclas, Sven-Olof Daunfeldt and Jörgen Hellström, 'Social Trust and Central-Bank Independence' in European Journal of Political Economy.
Handle: RePEc:hhs:iuiwop:0920

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Keywords: Trust; Credibility; Reforms; Monetary Policy; Inflation; Central Bank; Time Inconsistency;

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References

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Cited by:
  1. Etienne Farvaque & Muhammad Azmat Hayat & Alexander Mihailov, 2011. "Who Supports the ECB? Evidence from Eurobarometer Survey Data," Economics & Management Discussion Papers em-dp2011-04, Henley Business School, Reading University.
  2. Dalla Pellegrina, L. & Masciandaro, D. & Pansini, R.V., 2013. "The central banker as prudential supervisor: Does independence matter?," Journal of Financial Stability, Elsevier, vol. 9(3), pages 415-427.
  3. repec:rdg:wpaper:em-dp2011-04 is not listed on IDEAS

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