Outdated browser

You are using an outdated browser. DNB.nl works best with:

Trust in the central bank and inflation expectations

Working Papers

Using micro data from the 2015 Dutch CentERpanel, we examine whether trust in the European Central Bank (ECB) influences individuals’ expectations and uncertainty about future inflation, and also whether it anchors inflation expectations. We find that higher trust in the ECB lowers inflation expectations on average, and significantly reduces uncertainty about future inflation. Moreover, results from quantile regressions suggest that trusting the ECB increases (lowers) inflation expectations when the latter are below (above) the ECB’s inflation target. These findings hold after controlling for people’s knowledge about the objectives of the ECB. In addition, higher trust in the ECB raises expectations about GDP growth. The findings suggest that a central bank can influence the economy through people’s expectations, even in times when conventional monetary policy tools likely have weak effects.
 
Keywords: inflation expectations, inflation uncertainty, Anchoring, Trust in the ECB, Subjective Expectations.
JEL classifications: D12, D81, E03, E40, E58.

Working paper no. 537.

537 - Trust in the central bank and inflation expectations

1MB PDF
Download 537 - Trust in the central bank and inflation expectations

Discover related articles