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Determinants of Trust in the European Central Bank

  • Fischer, Justina AV


    (Dept. of Economics, Stockholm School of Economics)

  • Hahn, Volker


    (ETH Zurich)

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 there is a general consensus among academics that monetary policy 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 Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 695.

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Length: 30 pages
Date of creation: 19 Mar 2008
Date of revision:
Handle: RePEc:hhs:hastef:0695
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  1. 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.
  2. Clarida, R. & Gali, J. & Gertler, M., 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Working Papers 99-13, C.V. Starr Center for Applied Economics, New York University.
  3. 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.
  4. Eijffinger, Sylvester C W & Geraats, Petra M, 2002. "How Transparent are Central Banks?," CEPR Discussion Papers 3188, C.E.P.R. Discussion Papers.
  5. John Hudson, 2006. "Institutional Trust and Subjective Well-Being across the EU," Kyklos, Wiley Blackwell, vol. 59(1), pages 43-62, 02.
  6. 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.
  7. Benno Torgler, 2007. "Trust in International Organizations: An Empirical Investigation Focusing on the United Nations," Working Papers 05-2007, Institute of Local Public Finance.
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