Distrust in the ECB – product of failed crisis prevention or of inappropriate cure?
AbstractWe contribute to the new, albeit fast-growing empirical literature on the determinants of trust in central banks. Like in most other studies we use panel data models based on the Eurobarometer survey on trust in the European Central Bank. Firstly, we confirm the main conclusion from previous studies that the trust in the ECB has suffered from the crisis’ outburst. Moreover, households perceive the ECB’s responsibility for the occurrence of the crisis to go beyond the responsibility of other institutions. This finding casts some doubt on the central bank’s ability to manage expectations in a country having been hit by a severe negative demand shock, while this ability is precondition of the central banks’ power to boost aggregate demand when its interest rates are at the zero lower bound. Secondly (and most importantly), in addition to previous studies, we examine the links between the trust in the ECB and its policy. Our main result is that when households have pessimistic expectations, aggressive cuts in interest rates have an adverse effect on their trust in central bank. This result is in accordance with the ‘lack-of-confidence shock’ hypothesis developed by Schmitt-Grohé and Uribe (2012) and go against the ‘fundamental shock’ hypothesis which would imply positive effects of aggressive cuts for trust in the ECB. These findings are robust to changes in the estimation method, the definition of the lack of confidence shock, control variables and countries under consideration. We also show that it cannot be easily rejected as spurious
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 48242.
Date of creation: Jun 2013
Date of revision:
trust in central banks; zero lower bound; lack-of-confidence shock; Eurobarometer; panel data;
Find related papers by JEL classification:
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-20 (All new papers)
- NEP-CBA-2013-07-20 (Central Banking)
- NEP-EEC-2013-07-20 (European Economics)
- NEP-MON-2013-07-20 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Etienne Farvaque & Muhammad- Azmat Hayat & Alexander Mihailov, 2012.
"Who Supports the ECB? Evidence from Eurobarometer Survey Data,"
- 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.
- Jordi Galí & Frank Smets & Rafael Wouters, 2012.
"Slow Recoveries: A Structural Interpretation,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 44, pages 9-30, December.
- Jordi Galí & Frank Smets & Rafael Wouters, 2012. "Slow recoveries: A structural interpretation," Economics Working Papers 1317, Department of Economics and Business, Universitat Pompeu Fabra.
- Galí, Jordi & Smets, Frank & Wouters, Rafael, 2012. "Slow Recoveries: A Structural Interpretation," CEPR Discussion Papers 8978, C.E.P.R. Discussion Papers.
- Jordi Galí & Frank Smets & Rafael Wouters, 2012. "Slow Recoveries: A Structural Interpretation," Working Papers 630, Barcelona Graduate School of Economics.
- Jordi Galí & Frank Smets & Rafael Wouters, 2012. "Slow Recoveries: A Structural Interpretation," NBER Working Papers 18085, National Bureau of Economic Research, Inc.
- Adam, Klaus & Billi, Roberto M., 2007.
"Discretionary monetary policy and the zero lower bound on nominal interest rates,"
Journal of Monetary Economics,
Elsevier, vol. 54(3), pages 728-752, April.
- Klaus Adam & Roberto M. Billi, 2005. "Discretionary monetary policy and the zero lower bound on nominal interest rates," Research Working Paper RWP 05-08, Federal Reserve Bank of Kansas City.
- Adam, Klaus & Billi, Roberto M., 2005. "Discretionary monetary policy and the zero lower bound on nominal interest rates," CFS Working Paper Series 2005/16, Center for Financial Studies (CFS).
- Kotaro Ishi & Kenji Fujita & Mark R. Stone, 2011. "Should Unconventional Balance Sheet Policies Be Added to the Central Bank toolkit? a Review of the Experience so Far," IMF Working Papers 11/145, International Monetary Fund.
- John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
- Schmitt-Grohé, Stephanie & Uribe, Martín, 2012. "The Making Of A Great Contraction With A Liquidity Trap and A Jobless Recovery," CEPR Discussion Papers 9237, C.E.P.R. Discussion Papers.
- Claudio Borio, 2012. "The financial cycle and macroeconomics: What have we learnt?," BIS Working Papers 395, Bank for International Settlements.
- Martina Cecioni & Giuseppe Ferrero & Alessandro Secchi, 2011. "Unconventional Monetary Policy in Theory and in Practice," Questioni di Economia e Finanza (Occasional Papers) 102, Bank of Italy, Economic Research and International Relations Area.
- Barro, Robert J. & Gordon, David B., 1983.
"Rules, discretion and reputation in a model of monetary policy,"
Journal of Monetary Economics,
Elsevier, vol. 12(1), pages 101-121.
- Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
- Michael Woodford, 2012. "Inflation Targeting and Financial Stability," NBER Working Papers 17967, National Bureau of Economic Research, Inc.
- Michael D. Bordo & Joseph G. Haubrich, 2012.
"Deep Recessions, Fast Recoveries, and Financial Crises: Evidence from the American Record,"
NBER Working Papers
18194, National Bureau of Economic Research, Inc.
- Michael D. Bordo & Joseph G. Haubrich, 2012. "Deep recessions, fast recoveries, and financial crises: evidence from the American record," Working Paper 1214, Federal Reserve Bank of Cleveland.
- Anton Nakov, 2008.
"Optimal and Simple Monetary Policy Rules with Zero Floor on the Nominal Interest Rate,"
International Journal of Central Banking,
International Journal of Central Banking, vol. 4(2), pages 73-127, June.
- Anton Nakov, 2006. "Optimal and Simple Monetary Policy Rules with Zero Floor on the Nominal Interest Rate," Banco de Espaï¿½a Working Papers 0637, Banco de Espa�a.
- Stephanie Schmitt-Grohé & Martín Uribe, 2012. "The Making Of A Great Contraction With A Liquidity Trap and A Jobless Recovery," NBER Working Papers 18544, National Bureau of Economic Research, Inc.
- Roth, Felix & Gros, Daniel & Nowak-Lehmann D., Felicitas, 2012. "Has the financial crisis eroded citizens' trust in the European Central Bank? Panel data evidence for the Euro area, 1999-2011," Center for European, Governance and Economic Development Research Discussion Papers 124, University of Goettingen, Department of Economics.
- James H. Stock & Mark W. Watson, 2012. "Disentangling the Channels of the 2007-2009 Recession," NBER Working Papers 18094, National Bureau of Economic Research, Inc.
- Timo Henckel & Gordon Menzies & Daniel J. Zizzo, 2013.
"The Great Recession and the Two Dimensions of European Central Bank Credibility,"
Working Paper Series
13, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
- Timo Henckel & Gordon D. Menzies & Daniel J. Zizzo, 2013. "The Great Recession and the Two Dimensions of European Central Bank Credibility," CAMA Working Papers 2013-55, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.