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№ 2020/1
1West Ukrainian National University
Independence of central banks and inflation: which institutional factors are more important?
| Ekon. teor. 2020; 1:94-119 | https://doi.org/10.15407/etet2020.01.094 |
ABSTRACT ▼
Which institutional factors substantially affect macroeconomic performance or regulatory design is still under question and is discussed heavily. Institutional qual-ity variables are often opposed to variables that are cultural attributes. The prob-lem of relations between central banks independence and inflation also could be considered from that discussion viewpoint. From one point of view, culture should shape preferences that are expected to be converted into public choice. From another, institutional quality determines how preferences are correlated with particular policy-making following the initially taken commitments. The paper introduces the hypothesis that quality of institutions should override the cultural attrib-utes as an inflation performance factor. It is because of some reasons. Cultural attributes may affect macroeconomic performance produced by regulators in opposite ways. As well, institutional quality may distort relations between culture, preferences and public choice. This hypothesis is tested empirically. The basic regression based on variables that are proxies for institutional quality and policy-mix is added by variables from World Values Map and Hofstede cultural attributes. It is found that law enforcement is the most statistically meaningful variable. Central bank independence is also counter-inflationary as traditional theory assumes. The same applies to fiscal buffers and smaller resource endowments. Political regime is also important but fractionalization of society demonstrates some ambiguity. Survival values are proinflationary in democracies. But power distance could be counter-inflationary in some cases opposite to standard view. At the same time, relations between cultural proxies and inflation are not always obvious and should be considered in the particular institutional context. The general conclusion is that variables that are closer matching policy-making process are better in shaping the macroeconomic performance. Due to this, quality of institutions as well as institutional design of regulators are better in capturing macroeconomic performance than cultural drivers of potential macroeconomic preferences.
Keywords:central banks independence, inflation, quality of institutions, cultural attributes, rule of law, political regimes
JEL: E58, E59, O23, Q33
| Article in Russian (pp. 94 - 119) | Download | Downloads :298 |
| Article in Ukrainian (pp. 94 - 119) | Download | Downloads :241 |
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