Social Trust and Central-Bank Independence

Reprint No. 2014:25

Author(s): Niclas Berggren, Sven-Olov Daunfeldt and Jörgen HellströmYear: 2014 Title: European Journal of Political Economy Volume (No.): 34 (June) Pages: 425–439
Online article (restrictions may apply)
Preliminary version

Central banks have become more independent in many countries. A common rationale has been the existence of a credibility (or lack-of-trust) problem for monetary policy. This indicates a possible and until now unexplored link between social trust and central-bank independence. Our empirical findings, based on data from 149 countries, confirm such a link, in the form of a u-shaped relationship. We suggest that two factors help explain this finding: the need for this kind of reform and the ability with which it can be implemented. At low trust, the need for central-bank independence is sufficiently strong to bring it about, in spite of a low ability to undertake reform. At high trust, the ability to undertake reform is sufficiently strong to bring high independence about, in spite of a low need for it. At intermediate trust levels, lastly, neither need nor ability is strong enough to generate very independent central banks.

Berggren, Niclas, Sven-Olov Daunfeldt and Jörgen Hellström (2014), "Social Trust and Central-Bank Independence". European Journal of Political Economy 34(June), 425–439.

Niclas Berggren


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