Trust in central banks: how to measure it

Trust in central banks: a literature review

Michael Ehrmann in this paper provides a comprehensive review of the literature on trust in central banks, focusing on its importance, determinants, and challenges. Here are the key findings:

Determinants of Trust

• Macroeconomic conditions, especially national economic environments, significantly impact trust.
• Crises tend to cause sharp declines in trust that recover slowly.
• Sociodemographic factors like income, education, gender, and political orientation influence trust levels.
• Delivering on mandates is crucial, but factors outside central banks’ control also affect trust.

Challenges and Future Considerations

• Broader central bank mandates increase complexity and potential reputational risks.
• Rising polarization and populism may threaten central bank independence and trust.
• The changing media landscape, especially social media, can amplify criticism.
• Disinformation and misinformation pose growing threats to central bank credibility.

Measurement and Monitoring

Measuring trust is challenging but crucial for monitoring.  Various approaches exist, including surveys and analysis of inflation expectations but careful attention should be given to question wording and survey context as they significantly impact trust measurements.

Trust in Central Banks
Author: Michael Ehrmann
From: ECB

A novel measure of public trust in the Fed

Aikman et al. develop a novel measure of public trust in the Federal Reserve using Generative Artificial Intelligence (GAI) to analyze millions of tweets about the Fed, its leadership, and its policies. The authors collected approximately 4 million tweets mentioning the Federal Reserve from 2010 to 2023. They used specific queries to filter relevant tweets about the Fed, its officials, and policies and employed GAI (ChatGPT) to categorize tweets as positive, neutral, negative, or unrelated. The Trust Index was calculated as the difference between positive and negative tweet shares. Finally, the authors examined determinants of the trust index using regression analysis and used a narrative identification approach based on ethical scandals to study effects of trust shocks. Their findings include:

Trust Index Characteristics:

• The mean of the index is negative (-0.41) and it is highly volatile with a weekly standard deviation of 0.14.
• Significant decline observed in 2018.

Determinants of Trust:

• Macro-financial factors like inflation expectations and Fed Funds rate significantly impact trust.
• Publication of Monetary Policy Report and Jackson Hole speeches boost trust.
• Ethical scandals involving Fed officials and critical tweets from President Trump erode trust.

Effects of Trust Shocks:

• Negative shocks to trust reduce economic activity and increase inflation expectations.
• Effects are highly persistent, lasting up to 6 months after the shock.
• Trust shocks identified using ethical scandals operate like a supply shock.

Policy Implications:

1. Ensuring integrity of Fed officials is crucial for maintaining public trust.
2. Proactive and transparent communication can bolster trust.
3. Timely measures of public trust are needed to monitor and respond to changes.

In the Fed we trust? Measuring trust in central banking and its effects on the macroeconomy
Authors: David Aikman, Francesca Monti, Shunshun Zhang
From: King’s Business School, UC Louvain

Similar research on trust central banks can also be found in another recent newsletter:

Does the public trust central banks? (May 5, 2025)