The effect of Trusting Monetary Authority on the Impact of Monetary Policy

One of the most important institutional factors determining the effectiveness of monetary policy is trust in the monetary authority. Trust in the monetary authority from the perspective of economic policy in the short run will lower inflation expectations and in the long run will lead to long-term structural reforms that will increase economic growth and reduce inflation. In this regard, this study attempts to model the effect of trust in monetary authority on macroeconomic variables by modeling a dynamic stochastic general equilibrium model. The results of the model show that improvement in trust to monetary authority by affecting the expectations of economic agents and lowering the (price) expectations increases investment and employment and provides economic growth. Also, by Scenario in the model and considering different levels of trust, it was found that improving the level of trust enhances the impact of shocks on economic variables. In other words, increasing in trust to the monetary authority reduces the response of economic agents to the risk and thus makes money more attractive to the productive sector, thereby enhancing the effect of shocks such as monetary shocks on economic growth. Therefore, policymakers' efforts to rebuild and raise trust in monetary authority can help improve economic conditions.