Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/81389
Authors: 
Berggren, Niclas
Daunfeldt, Sven-Olof
Hellström, Jörgen
Year of Publication: 
2012
Series/Report no.: 
IFN Working Paper 920
Abstract: 
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.
Subjects: 
Trust
Credibility
Reforms
Monetary Policy
Inflation
Central Bank
Time Inconsistency
JEL: 
E52
E58
P48
Z13
Document Type: 
Working Paper

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