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Bergh, A., Bjørnskov, C. (2014). Trust Us to Repay: Social Trust, Long-Term Interest Rates and Sovereign Credit Rating. IFN Working Paper No. 1039, 2014

This paper asks whether the sensitivity of market long-term interest rates and credit ratings is associated with cross-country differences in informal institutions, measured by social trust. We note a number of theoretical mechanisms that could imply that similar objective problems are more likely to be effectively dealt with in higher-trust societies. A set of panel estimates across middle and high-income countries reveal that interest rates and ratings are substantially more sensitive to inflation and growth problems in low-trust countries. This finding sheds light on the differential market reactions to economic problems in seemingly comparable countries.
JEL-codes: G12, A13
Keywords: Trust, credit ratings, interest rates, economic reforms


Bergh, Andreas

Andreas Bergh is associate professor at the department of economics at Lund university, and has previously been a research fellow at the Ratio institute and a visiting scholar at Harvard university. His research includes welfare state economics and institutional economics. Among the questions...

Bjørnskov, Christian

Christian Bjørnskov is Associate Professor at the Department of Economics and Business of the Aarhus University, where he teaches International Economics. His main research interests are Social capital, International trade and Development Economics. Official Site

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