In the Fed we trust? Measuring trust in central banking and its effects on the macroeconomy

David Aikman, Francesca Monti () and Shunshun Zhang
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Francesca Monti: Université catholique de Louvain, LIDAM/CORE, Belgium

No 2026017, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We develop a novel measure of trust in the Federal Reserve using Generative Artificial Intelligence to analyse millions of tweets referencing the Fed, its leadership, and its policy framework and decisions. Our measure exhibits pronounced swings that align with key events and responds intuitively to macro-financial variables and indicators of the U.S. monetary policy stance. To identify exogenous trust shocks, we use a narrative approach based on ethical scandals involving certain FOMC members. We find that trust shocks significantly affect macroeconomic conditions: news sentiment, business conditions, and the stock market all decline, while inflation expectations and market volatility (VIX) increase.

Pages: 43
Date: 2026-07-14
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2026017

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