Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/88717
Authors: 
Bursian, Dirk
Faia, Ester
Year of Publication: 
2013
Series/Report no.: 
SAFE Working Paper Series 14
Abstract: 
Trust in policy makers fluctuates signficantly over the cycle and affects 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 affects 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.
Subjects: 
trust evolutionary games
trust driven expectations
monetary transmission mechanism
JEL: 
E0
E5
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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