Trust in the Central Bank and Inflation Expectations
50 Pages Posted: 14 Nov 2016 Last revised: 18 Sep 2019
Date Written: November 12, 2016
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 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.
Keywords: Inflation expectations, Inflation uncertainty, Anchoring, Trust in the ECB, Subjective Expectations
JEL Classification: D12, D81, E03, E40, E58
Suggested Citation: Suggested Citation