This Website uses cookies. By using this website you are agreeing to our use of cookies and to the terms and conditions listed in our data protection policy. Read more

Journal of Money, Credit and Banking

Trust Us to Repay: Social Trust, Long-Term Interest Rates, and Sovereign Credit Ratings

Scientific Article in English
Reference
Bergh, Andreas and Christian Bjørnskov (2021). “Trust Us to Repay: Social Trust, Long-Term Interest Rates, and Sovereign Credit Ratings”. Journal of Money, Credit and Banking 53(5), 1151–1174. doi.org/10.1111/jmcb.12812

Authors
Andreas Bergh, Christian Bjørnskov

This paper asks whether the sensitivity of market long-term interest rates and credit ratings is associated with cross-country differences in informal institutions, measured by social trust. We note a number of theoretical mechanisms that could imply that similar objective problems are more likely to be effectively dealt with in higher-trust societies. A set of panel estimates across middle and high-income countries reveal that interest rates and ratings are substantially more sensitive to inflation and growth problems in low-trust countries. This finding sheds light on the differential market reactions to economic problems in seemingly comparable countries.