Trust in the ECB in turbulent times

Trust in the European Central Bank (ECB) is vital. Although it is important to study its level, drivers and effects especially in turbulent times, little is known about trust in the ECB during the COVID-19 pandemic. We use the pilot data from the ECB Consumer Expectations Survey during 2020-2021 to shed light on trust in the ECB during the pandemic. This is a new rich monthly dataset covering six key euro area countries. We find that there is ample room to improve consumers’ trust in the ECB. Trust is the lowest in Italy and Spain. Moreover, personal COVID-19 experiences play a role: respondents who reduced the number of hours worked due to COVID-19 have lower trust in the ECB than those with unchanged working hours. Trust in the ECB varies also within countries. It is highest among males and people with a good financial situation. It increases with financial knowledge, education, income, wealth, and trust in other people. Trust in the ECB and financial knowledge contribute to better anchoring of consumers’ inflation expectations three years ahead around the ECB’s medium-term inflation goal. Lastly, we show that consumers with higher inflation expectations are more likely to increase their household spending and buy a large item.

Keywords: European Central Bank; trust; financial knowledge; COVID-19 crisis; inflation expectations; spending decisions
JEL codes D83; E58; E52; G53

Working paper no. 722