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Trust in the monetary authority

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  • Bursian, Dirk
  • Faia, Ester

Abstract

Trust in policy makers ‡uctuates signi cantly over the cycle and a¤ects the transmission mechanism. Despite this it is absent from the literature. We build a monetary model embedding trust cycles; the latter emerge as an equilibrium phenomenon of a game-theoretic interaction between atomistic agents and the monetary authority. Trust a¤ects agents’stochastic discount factors, namely the price of future risk, and through this it interacts with the monetary trans- mission mechanism. Using data from the Eurobarometer surveys we analyze the link between trust and the transmission mechanism of macro and monetary shocks: empirical results are in line with theoretical ones. --

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Paper provided by Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt in its series SAFE Working Paper Series with number 14.

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Date of creation: 2013
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Handle: RePEc:zbw:safewp:14

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Keywords: trust evolutionary games; trust driven expectations; monetary transmission mechanism;

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  1. Franses,Philip Hans & Dijk,Dick van, 2000. "Non-Linear Time Series Models in Empirical Finance," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521770415.
  2. Guido Tabellini, 2010. "Culture and Institutions: Economic Development in the Regions of Europe," Journal of the European Economic Association, European Economic Association, European Economic Association, vol. 8(4), pages 677-716, 06.
  3. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, Elsevier, vol. 74(1), pages 119-147, September.
  4. Bayoumi, Tamim & Goldstein, Morris & Woglom, Geoffrey, 1995. "Do Credit Markets Discipline Sovereign Borrowers? Evidence from US States," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1088, C.E.P.R. Discussion Papers.
  5. Bayoumi, Tamim & Goldstein, Morris & Woglom, Geoffrey, 1995. "Do Credit Markets Discipline Sovereign Borrowers? Evidence from the U.S. States," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 27(4), pages 1046-59, November.
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Cited by:
  1. Dirk Bursian & Alfons Weichenrieder & Jochen Zimmer, 2013. "Trust in Government and Fiscal Adjustments," CESifo Working Paper Series 4310, CESifo Group Munich.

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