Never forget, never forgive: the impact of inflation on trust in banks

ABSTRACT

This paper investigates how inflation influences an individual’s trust in banks. Using individual data covering 72 countries, we find that inflation, both recent and experienced throughout life, exerts a detrimental influence on trust in banks. Even if recent inflation has a stronger impact, these results support the view that inflation has both short- and long-term effects on trust in banks. Additional estimations show that individual characteristics like education and access to information can affect the negative impact of inflation on trust in banks. Overall, our results indicate that fighting against inflation prevents a lasting reduction of trust in banks.

KEYWORDS:

• Trust
• inflation
• banking
• expectations

JEL CLASSIFICATION:

• D83
• E58
• G21
• O16

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ The 2022 Edelman Trust Barometer report can be found on https://www.edelman.com/trust/2022-trust-barometer.

² Financial crisis is significantly negative in all estimations performed without year fixed effects. We can thus conclude that the inclusion of year fixed effects leads to the lack of significance of Financial crisis, since they absorb the effect of the Global Financial Crisis during the period of our study. The results of estimations without year fixed effects are available upon request.