Fiscal Rules Compliance and Trust in Institution in Eurozone: The Case of European Central Bank

Rosaria Rita Canale and Giorgio Liotti ()

Panoeconomicus, 2019, vol. 66, issue 1, 25-39

Abstract: The institutional and policy features of Eurozone represent a field of special interest to analyse the process of integration. The aim of this study is to investigate on the existence of a trade-off between the compliance to fiscal rules and trust as a proxy of institutional legitimacy in Eurozone. At this scope, the relation between trust in the European Central Bank and structural adjustment, together with unemployment and inflation in 11 Eurozone countries from 1999 to 2013, is tested. The empirical results showed that a) discretionary policy measures have an opposite sign impact on trust; b) in peripheral countries, the structural adjustment is the main variable affecting trust in ECB; c) unemployment plays a key role; and d) deviation from the objective of 2% of inflation is not significant. These outcomes prove the existence of a trade-off between the fiscal rules commitments and the European institutional consolidation process. Key words: Trust, ECB, Fiscal policy, Eurozone.JEL: E02, E31, E63, D63. Pridržavanje fiskalnih pravila i poverenje u institucije Evrozone: slučaj Evropske centralne banke Institucionalna i politička obeležja Evrozone predstavljaju oblast od posebnog interesa za analizu procesa integracije. Cilj ove studije je da istraži postojanje trade-off-a između pridržavanja fiskalnih pravila i poverenja kao veštačke promenljive za institucionalni legitimitet u Evrozoni. U tom smislu, ispitan je odnos između poverenja u Evropsku centralnu banku (ECB) i strukturnog prilagođavanja, zajedno sa nezaposlenošću i inflacijom u 11 zemalja Evrozone od 1999. do 2013. godine. Empirijski rezultati su pokazali da: (i) mere diskrecione politike imaju uticaj suprotnog znaka na poverenje; (ii) u perifernim zemljama, strukturno prilagođavanje je osnovna varijabla koja utiče na poverenje u ECB; (iii) nezaposlenost igra ključnu ulogu; i (iv) odstupanje od cilja od 2% inflacije nije značajno. Rezultati dokazuju postojanje trade-off-a između pridržavanja fiskalnih pravila i procesa evropske institucionalne konsolidacije. Ključne reči: Poverenje, ECB, fiskalna politika, Evrozona.

Keywords: trust; ECB; fiscal policy; Eurozone (search for similar items in EconPapers)
Date: 2019
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