Department of Economics and Business Economics

Trust us to Repay: Social Trust, Long-Term Interest Rates, and Sovereign Credit Ratings

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DOI

This paper asks whether the sensitivity of market long-term interest rates and credit ratings is associated with cross-country differences in social trust. We note a number of theoretical mechanisms that suggest that macroeconomic shocks are more likely to be effectively dealt with in higher-trust societies. A set of panel estimates across middle- and high-income countries reveals that interest rates and credit ratings are substantially more sensitive to inflation and growth problems in low-trust countries. This finding sheds light on the differential market reactions to macroeconomic problems in seemingly comparable countries.

Original languageEnglish
JournalJournal of Money, Credit and Banking
Volume53
Issue5
Pages (from-to)1151-1174
Number of pages24
ISSN0022-2879
DOIs
Publication statusPublished - Aug 2021

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