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Social Capital and Monetary Policy

Author

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  • Rustam Jamilov

    (University of Oxford)

Abstract

The U.S. have experienced a significant decline in generalized trust over the past three decades. Has this secular trend impacted central banking? Empirically, we document that states with high levels of institutional and interpersonal trust are robustly more responsive to monetary policy shocks. Theoretically, we embed a circle of trust block into the New Keynesian framework in continuous time. The calibrated model predicts that monetary policy has become 20% less effective due to the decline in trust. Our findings firm up the social capital channel of monetary non-neutrality and warn that crises of trust could lead to crises of policy inefficacy.

Suggested Citation

  • Rustam Jamilov, 2022. "Social Capital and Monetary Policy," Discussion Papers 2219, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:2219
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    File URL: https://www.lse.ac.uk/CFM/assets/pdf/CFM-Discussion-Papers-2022/CFMDP2022-19-Paper.pdf
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    References listed on IDEAS

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    1. Christina D. Romer & David H. Romer, 2004. "A New Measure of Monetary Shocks: Derivation and Implications," American Economic Review, American Economic Association, vol. 94(4), pages 1055-1084, September.
    2. Yann Algan & Sergei Guriev & Elias Papaioannou & Evgenia Passari, 2017. "The European Trust Crisis and the Rise of Populism," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(2 (Fall)), pages 309-400.
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    4. Daron Acemoglu & Pascual Restrepo, 2020. "Robots and Jobs: Evidence from US Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 128(6), pages 2188-2244.
    5. Giuliano, Paola & Wacziarg, Romain, 2020. "Who Voted for Trump? Populism and Social Capital," CEPR Discussion Papers 15140, C.E.P.R. Discussion Papers.
    6. Emi Nakamura & Jón Steinsson, 2018. "Identification in Macroeconomics," Journal of Economic Perspectives, American Economic Association, vol. 32(3), pages 59-86, Summer.
    7. Leah Platt Boustan, 2016. "Competition in the Promised Land: Black Migrants in Northern Cities and Labor Markets," NBER Books, National Bureau of Economic Research, Inc, number bous-2.
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    Cited by:

    1. Paweł Kowalewski, 2024. "Relationship between central banks’ activities and their profitability," Bank i Kredyt, Narodowy Bank Polski, vol. 55(3), pages 221-254.

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    More about this item

    Keywords

    Monetary policy; trust; social capital;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E7 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics
    • Z1 - Other Special Topics - - Cultural Economics

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