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.

Trust in policy makers ‡uctuates signi…cantly over the cycle and a¤ects the transmission mechanism. Despite this it is absent from the literature. We build a monetary model embedding trust cycles; the latter emerge as an equilibrium phenomenon of a game-theoretic interaction between atomistic agents and the monetary authority. Trust a¤ects agents'stochastic discount factors, namely the price of future risk, and through this it interacts with the monetary transmission mechanism. Using data from the Eurobarometer surveys we analyze the link between trust and the transmission mechanism of macro and monetary shocks: empirical results are in line with theoretical ones.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Non-Technical SummaryTrust 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 tr...

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