Vol. 13 No. 1 (2025)
March 2025

Articles

Salient monetary policy decisions and non-experts’trust in central banks

Published 2025-03-01

  • Maqsood Aslam
    • ,
  • Etienne Farvaque
    • ,
  • Hira Iqbal
    • ,
  • Piotr Stanek

Maqsood Aslam
Quaid-i-Azam University

Etienne Farvaque
Université de Lille

Hira Iqbal
Department of Economics, National University of Sciences & Technology (NUST), Pakistan

Piotr Stanek
Krakow University of Economics

Abstract

Objective: The objective of the article is to shed new light on the relationship between central bank communication and the trust monetary institutions can obtain from ordinary citizens via a comparison of the European Central Bank (ECB) with the Federal Reserve (the Fed).

Research Design & Methods: We used the Eurobarometer and Booth Chicago/Kellogg School Financial Trust Index to study the evolutions of trust by non-experts in the Fed and the ECB during two episodes of salient monetary policy decisions: 2012-2013 and 2020-2021. Utilizing logistic regressions on representative samples of American and EU citizens, we show which among the recent key decisions in monetary policy by the two major central banks significantly affected the levels of trust (and in which directions).

Findings: Our findings suggest that the ‘taper tantrum’ speech by Ben Bernanke negatively impacted the trust in the Fed, whereas the ‘whatever it takes’ speech by Mario Draghi significantly increased the trust in the ECB. On the other hand, significant policy reactions to the COVID-19 pandemic did not affect trust in central banks as could have been expected neither for the ECB nor the Fed. Our inference is based on the estimates considering the standard control variables and for both central banks are robust to a relevant placebo test.

Implications & Recommendations: Our results suggest that well-communicated salient monetary policy decisions can boost public trust in central banks, notably in the contexts where the central banks are perceived as the key actors.

Contribution & Value Added: Thus, our analysis contributes to the literature, by focusing on how salient decisions can influence the degree of trust in the central bank by non-experts.

Keywords

European Central Bank, Federal Reserve, trust, Global Financial Crisis, COVID-19 crisis

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Author Biography

Maqsood Aslam

PhD in Economics (2019); Assistant Professor at the School of Economics, Quaid-i-Azam University (Pakistan). His research interests include the economics of central banking, the economics of religion, and political economy.

Etienne Farvaque

PhD in Economics (1997). Full Professor at the Department of Economics, Université de Lille (France). His research interests include monetary economics, the economics of central banking, economics of voting, and political economy.

Hira Iqbal

PhD in Economics (2021); Assistant Professor at the Department of Economics, National University of Sciences & Technology (NUST), Pakistan. Her research interests concentrate mainly on the political economy.

Piotr Stanek

PhD in Economics (2007); Associate Professor at the Department of International Economics, Krakow University of Economics. His research interests include international economics, economics of central banking, debt sustainability, and political economy.

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