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Determinants of Trust in the European Central Bank

Author

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  • Justina Fischer
  • Volker Hahn

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.

Suggested Citation

  • Justina Fischer & Volker Hahn, 2008. "Determinants of Trust in the European Central Bank," TWI Research Paper Series 26, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
    • Handle: RePEc:twi:respas:0026
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    References listed on IDEAS

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    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(4), pages 1169-1189.
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    More about this item

    Keywords

    ECB; trust; European Union; Eurobarometer; panel data; behavioral economics;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple 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
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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