Scandinavian Working Papers in Economics

HUI Working Papers,
HUI Research

No 107: Does Social Trust Speed Up Reforms? The case of Central Bank Independence

Niclas Bergren (), Sven-Olov Daunfeldt () and Jörgen Hellström
Additional contact information
Niclas Bergren: Research Institute of Industrial Economics (IFN), Postal: Stockholm, Sweden and Department of Institutional Economics, University of Economics in Prague, Czech Republic
Sven-Olov Daunfeldt: HUI Research, Postal: SE-10329 Stockholm, Sweden and Department of Economics, Dalarna University, Borlänge, Sweden,
Jörgen Hellström: Umeå School of Business and Economics, Postal: Umeå University, Umeå, Sweden,

Abstract: Many countries have undertaken central-bank independence reforms, but the years of implementation differ. What explains such differences in timing? This is of interest more broadly, as it sheds light on factors that matter for the speed at which economic reforms come about. We study a rich set of potential determinants, both economic and political, but put special focus on a cultural factor, social trust. We find empirical support for an inverse u-shape: Countries with low and high social trust implemented their reforms earlier than countries with intermediate levels. We make use of two factors to explain this pattern: the need to undertake reform (which is more urgent in countries with low social trust) and the ability to undertake reform (which is greater in countries with high social trust).

Keywords: Central banks; Independence; Social trust; Inflation; Monetary policy; Reform

JEL-codes: E52; E58; P48; Z13

24 pages, December 22, 2014

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