 Does trust favor macroeconomic stability?Post-Print from HAL 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) Published in Journal of Comparative Economics, 2013, 41 (3), pp.653-668. ⟨10.1016/j.jce.2012.10.002⟩ There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01510293 DOI: 10.1016/j.jce.2012.10.002 Access Statistics for this paper More papers in Post-Print from HAL |
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