DP14202 Trust in the Central Bank and Inflation Expectations

Author(s): Dimitris Christelis, Dimitris Georgarakos, Tullio Jappelli, Maarten Van Rooij
Publication Date: December 2019
Keyword(s): anchoring, Inflation expectations, Inflation uncertainty, subjective expectations, trust in the ECB
JEL(s): D12, D81, E03
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14202

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.