Links between trust in the ECB and its interest rate policy |
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Authors: | Maciej Albinowski Andrzej Rzońca |
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Affiliation: | International Comparative Studies, Warsaw School of Economics, 02-554 Warsaw, Poland |
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Abstract: | We analyse determinants of trust in the European Central Bank (ECB). Our main finding is that when households have pessimistic expectations, aggressive cuts in interest rates have an adverse effect on their trust in central bank. This result is in accordance with the ‘lack-of-confidence shock’ hypothesis developed by Schmitt-Grohé and Uribe (2012) and in contrast with the ‘fundamental shock’ hypothesis which implies positive effects of aggressive cuts for trust in the ECB. The result is robust to various changes in the modelling approach. |
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Keywords: | trust in central banks zero lower bound lack-of-confidence shock Eurobarometer panel data |
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