The importance of trust in economic life is pervasive. Trust in the quality of institutions, trust in the executive and judiciary, and trust in a stable environment governed by the rule of law all affect the behaviour of economic agents and make them more willing to engage in contractual arrangements, to plan, and to invest. There is now a large literature documenting how trust matters for economic development and growth.1 Trust plays some role in standard macroeconomic models. These now typically incorporate a central bank that announces an inflation target. The credibility of this inflation target usually plays an important role in the effectiveness of monetary policies and in the transmission of shocks. Thus, it can be said that trust in the central bank matters for the way monetary policies and exogenous shocks are transmitted into the economy. In our recent paper (De Grauwe and Ji 2022), we pursue the analysis of trust in macroeconomic modelling more systematically. First, we enlarge our definition of trust and assume it has two dimensions. The first dimension is an institutional one. It is the trust in the central bank that has announced an inflation target. We, therefore, use trust as a corollary of the credibility of the central bank. A central bank that has built strong credibility of its inflation target is an institution that is trusted when it promises price stability. A second dimension is trust in the future. We measure this by the degree of optimism about future economic activity. Trust here means a belief that future economic activity will be strong. Conversely, a lack of trust means that there is pessimism about future economic activity....
The pandemic-induced lockdowns and the ensuing global recession of 2020 which followed have created a highly uncertain global economic outlook and had dramatic social consequences. Globalization is stalling, social cohesion is being eroded by unrest and political polarization, and the still unfolding economic crisis is threatening the livelihoods of those at the lower end of the income spectrum. As existing temporary support measures begin to expire in several countries, it will be of paramount importance to put in place the structural reforms that will help to build back not only better but also broader.
The latest white paper published by the World Economic Forumâs Centre for the New Economy and Society, Building Back Broader: Policy Pathways for a Post Pandemic Transformation, is the outcome of a set of multistakeholder dialogues which engaged six Global Future Councils. The Global Future Council on the New Agenda for Fiscal and Monetary Policy identified three policy pathways for the transformation of fiscal and monetary policy which could foster a fairer, greener and more inclusive post-pandemic world:...
