Does Trust Favor Macroeconomic Stability?

Marc Sangnier

No 1227, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: This paper investigates the relationship between trust and macroeconomic volatility. An illustrative model rationalizes the relationship between trust and volatility. In this model, trust relaxes credit constraints and diminishes investment's procyclicality. I provide empirical evidence for the basic predictions of the model. Then, I show that higher trust is associated with lower macroeconomic volatility in a cross section of countries. This relationship persists when various covariates are taken into account. I use inherited trust of Americans as an instrumental variable for trust in their origin country to overcome reverse causality concerns. Using changes in inherited trust over the 20th century, I do not find clear evidence that increasing trust is also associated with decreasing volatility across time at the country level.

Keywords: Trust; volatility; macroeconomic stability; social capital. (search for similar items in EconPapers)
JEL-codes: E02 E30 N10 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2012-10
New Economics Papers: this item is included in nep-evo, nep-mac and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Does trust favor macroeconomic stability? (2013)
Working Paper: Does trust favor macroeconomic stability? (2013)
Working Paper: Does trust favor macroeconomic stability? (2013)
Working Paper: Does trust favor macroeconomic stability? (2009)
Working Paper: Does trust favor macroeconomic stability? (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:aim:wpaimx:1227

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