Trust Me! I am a European Central Banker

Abstract

Trust in central banking has become increasingly important to practitioners. Recently, the Eurosystem, as well as other monetary systems around the globe, has experienced a significant number of unconventional monetary policy measures. Besides keeping interest rates on the main refinancing operations historically low, the Governing Council of the European Central Bank (ECB) inter alia decided to intervene in the bond market through secondary market operations in order to combat the crisis. These interventions have been subject to substantive criticism saying that such bond purchases violate the ECB code of conduct. Here the question arises whether such unconventional measures do indeed run the risk of worsening the credibility of the ECB or benefit the trust-building process by stabilizing or even fostering good macroeconomic conditions. Hence, a systematic investigation of the drivers of trust in the ECB is desirable.We provide new evidence into which factors determine trust in central banking. We use a unique cross-country dataset based on Eurobarometer survey data covering the years 1999 to 2010 which includes a rich set of socio-economic characteristics. We then supplement it with variables meant to reflect a country's macroeconomic condition as well as regional developments. We find that besides individual socio-economic characteristics, macroeconomic conditions play a crucial role in the trust-building process which constitutes boundedly rational behavior in the trust-building process. Factors that are outside the control of the ECB should be irrelevant for the trust-building process of fully rational agents which is, however, not supported by our analysis.Overall, our results suggest that trust in the ECB can be strengthened by an improvement in general macroeconomic conditions in European countries. Therefore, current ECB market interventions may have positive effects on the overall level of trust in the long-run through strengthening and stabilizing effects on the European markets and the European economy in general. We use a unique cross-country dataset which includes a rich set of socioeconomic characteristics and supplement it with variables meant to reflect a country's macroeconomic condition. We find that besides individual socio-economic characteristics, macroeconomic conditions play a crucial role in the trust-building process. Our results suggest that agents are boundedly rational in the trust-building process and that current ECB market operations may even be beneficial for trust in the ECB in the long-run. Trust Me! I am a European CentralJEL-Classification: D1, E5, G21, H6.

Determinants of Trust in Institutions in Times of Crisis: Survey‐Based Evidence from the European Union

“…Regarding our macroeconomic determinants, our results show that the cyclical component of real GDP growth has a surprising negative or insignificant impact on trust across all European institutions, with the exception of the national government. More specifically, and in line with previous findings (see Bursian and Fürth, ; La Porta et al ., ), we find that a 1.0 per cent increase in real GDP growth implies a 0.03 percentage point increase in the probability of trust in the national government when standard errors are used. This is consistent with similar finding by Munoz et al .…”

“…Data on macroeconomic variables are obtained from Eurostat. Bursian and Fürth (), in line with La Porta et al . (), report that a high level of real GDP as a proxy for national income might be regarded as an indicator of an economy that is well‐functioning as well as of a certain level of efficiency associated with different economic institutions.…”

“…According to Bursian and Fürth (), one would expect variables that are not related to financial institutions, like the ECB, or are outside of their control to be irrelevant to the trust‐building process. However, if we assume that members of the general public do not always act rationally and cannot distinguish the real mandate of each institution, they might be influenced by such factors as well.…”

“…Individual characteristics and socio‐demographic determinants, such as education, wealth and political orientation, and their effect on people's trust towards the ECB are considered by Farvaque et al . () and by Bursian and Furth (). Finally, Ehrmann et al .…”

Central Bank Reputation and Inflation-Unemployment Performance: Empirical Evidence from an Executive Survey of 62 Countries

“…A line of research explores the determinants of public trust in CBs using individual-level survey data (Fischer & Hahn, 2008;Ehrmann, Soudan & Stracca, 2012;Wälti, 2012;Bursian & Fürth, 2015 means that you fully trust." The study finds that stronger trust in the ECB lowers inflation expectations, increases growth expectations, and reduces uncertainty about future inflation.…”