Working Paper No. 920

Social Trust and Central-Bank Independence

Published: May 23, 2012Keywords: Trust; Credibility; Reforms; Monetary Policy; Inflation; Central Bank; Time InconsistencyJEL-codes: E52; E58; P48; Z13
Published version

Social Trust and Central-Bank Independence Niclas Berggren, Sven-Olov Daunfeldt and Jörgen Hellström


Central banks have been made 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 that there is 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 levels, the need for central-bank independence is strong enough to dominate the low ability; at high trust levels the ability for reform is high and dominates the low need; at intermediate trust levels there is neither need nor ability strong enough to generate very independent central banks.

Niclas Berggren

Contact

Ph: +46 8 665 4520
niclas.berggren@ifn.se

Elgar Companion to

Social Capital and Health

Martin Ljunge okt 2018.jpg

Martin Ljunge, IFN, is the author of a chapter, "Trust promotes health: addressing reverse causality by studying children of immigrants", in a new book edited by Sherman Folland and Eric Nauenberg. The cutting edge of research is presented, covering the ever-expanding social capital field.

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