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Determinants of Trust in the European Central Bank

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Justina Fischer
Volker Hahn

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Abstract

In this paper we study the determinants of citizens’ 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 people’s trust. Interestingly, active labor market policies, which can be interpreted as proxies for the public’s perception of the urgency of the problem of high unemployment, tend to decrease trust.

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Paper provided by Thurgauer Wirtschaftsinstitut, Universität Konstanz in its series TWI Research Paper Series with number 26.

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Date of creation: 2008
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Handle: RePEc:twi:respas:0026

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Related research
Keywords: ECB; trust; European Union; Eurobarometer; panel data; behavioral economics;

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  2. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November. [Downloadable!] (restricted)
  3. Benno Torgler, 2007. "Trust in International Organizations: An Empirical Investigation Focusing on the United Nations," School of Economics and Finance Discussion Papers and Working Papers Series 213, School of Economics and Finance, Queensland University of Technology. [Downloadable!]
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  4. John Hudson, 2006. "Institutional Trust and Subjective Well-Being across the EU," Kyklos, Blackwell Publishing, vol. 59(1), pages 43-62, 02. [Downloadable!] (restricted)
  5. Eijffinger, Sylvester C W & Geraats, Petra M, 2002. "How Transparent are Central Banks?," CEPR Discussion Papers 3188, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Herrendorf, Berthold & Lockwood, Ben, 1997. "Rogoff's "Conservative" Central Banker Restored," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 476-95, November.
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  7. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June. [Downloadable!] (restricted)
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