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Trust in the central bank and inflation expectations: Experimental evidence

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  • Niizeki, Takeshi

Abstract

Exploiting an exogenous variation in trust in the central bank driven by randomized information treatment, this paper examines the extent to which the trust in the central bank affects the inflation expectations in Japan. The findings are twofold. First, information provision about inappropriate statement made by the Governor of the Bank of Japan (BOJ) reduced respondents’ trust in the BOJ by about 1.11 points on a 10-point scale. Second, a one-point decrease in trust in the BOJ raised inflation expectations by 0.63 percentage points and increased the probability of the inflation expectations being outside the BOJ’s target of around 2% by four percentage points.

Suggested Citation

  • Niizeki, Takeshi, 2023. "Trust in the central bank and inflation expectations: Experimental evidence," Economics Letters, Elsevier, vol. 231(C).
    • Handle: RePEc:eee:ecolet:v:231:y:2023:i:c:s016517652300321x
    DOI: 10.1016/j.econlet.2023.111296
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    References listed on IDEAS

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    1. Olivier Coibion & Dimitris Georgarakos & Yuriy Gorodnichenko & Michael Weber, 2023. "Forward Guidance and Household Expectations," Journal of the European Economic Association, European Economic Association, vol. 21(5), pages 2131-2171.
    2. Olivier Coibion & Dimitris Georgarakos & Yuriy Gorodnichenko & Maarten van Rooij, 2023. "How Does Consumption Respond to News about Inflation? Field Evidence from a Randomized Control Trial," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(3), pages 109-152, July.
    3. Hoffmann, Mathias & Moench, Emanuel & Pavlova, Lora & Schultefrankenfeld, Guido, 2022. "Would households understand average inflation targeting?," Journal of Monetary Economics, Elsevier, vol. 129(S), pages 52-66.
    4. Dimitris Christelis & Dimitris Georgarakos & Tullio Jappelli & Maarten van Rooij, 2020. "Trust in the Central Bank and Inflation Expectations," International Journal of Central Banking, International Journal of Central Banking, vol. 16(6), pages 1-37, December.
    5. Olivier Coibion & Yuriy Gorodnichenko & Michael Weber, 2022. "Monetary Policy Communications and Their Effects on Household Inflation Expectations," Journal of Political Economy, University of Chicago Press, vol. 130(6), pages 1537-1584.
    6. Mellina, Sathya & Schmidt, Tobias, 2018. "The role of central bank knowledge and trust for the public's inflation expectations," Discussion Papers 32/2018, Deutsche Bundesbank.
    7. Rumler, Fabio & Valderrama, María Teresa, 2020. "Inflation literacy and inflation expectations: Evidence from Austrian household survey data," Economic Modelling, Elsevier, vol. 87(C), pages 8-23.
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    Cited by:

    1. Ehrmann, Michael, 2024. "Trust in central banks," Working Paper Series 3006, European Central Bank.
    2. Stanisławska, Ewa & Paloviita, Maritta, 2024. "Heterogeneous responsiveness of consumers’ medium-term inflation expectations," Economics Letters, Elsevier, vol. 237(C).

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    More about this item

    Keywords

    Trust in the central bank; Inflation expectations; Randomized control trial;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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