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...
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