Voter Responses to Monetary Policy: Experimental Evidence in Times of Crisis

• In Event: Central Banks and Their Objectives

Abstract

Is public opinion responsive to the decisions of central banks? In providing evidence that citizens have a limited understanding of monetary policy, the existent literature suggests that the public cares little about the policies of central banks. Nonetheless, threats to financial and price stability have recently pushed monetary authorities to take unprecedented actions producing strong distributional consequences at the domestic and international level. Non-standard monetary policy measures have supported economic growth across the Western world, but they have also caused controversies over their legitimacy. This generates the expectation that the greater politicization of monetary policy is conducive to increased sensitivity of the public to the decisions of central banks. To test this hypothesis, we conduct survey experiments in five euro area countries during the COVID-19 crisis. We examine the effect of different announcements of the European Central Bank (ECB) on the policy approval and economic expectations of European voters. The results show that the European public is receptive to changes in monetary policy. Voters object particularly strongly to interest rate hikes and favor interest rate cuts in Southern Europe. Instead, Northern European voters have weaker preferences for monetary policy expansion in the crisis. We find evidence that supporters of populist parties are most likely to disapprove of the policy decisions of the ECB across the euro area, while individuals with high saving rates are significantly more likely to be against interest rate cuts in Northern Europe. These results shed light of the effects of the politicization of monetary policy on public opinion in Europe.

Authors

• Cristina Bodea, Michigan State University

• Federico Maria Ferrara, London School of Economics and Political Science

• Thomas Sattler, University of Geneva