Affiliation:
1. School of Economics Shandong University Jinan China
Abstract
AbstractIn this paper, we examine the relationship between Hofstede national cultures and de jure central bank independence. We propose theoretical hypotheses to explain how cultural dimensions determine central bank independence and test these hypotheses using an international dataset. We find that two cultural dimensions, namely, individualism and uncertainty avoidance, are significantly related to central bank independence. Central bank independence is higher in collectivistic and uncertainty avoidance countries. We further reveal that these cultural dimensions affect central bank independence in different ways. Individualism and uncertainty avoidance are related to independence in policy formulation and limitations on lending to governments. Although power distance and masculinity are insignificantly related to total central bank independence, they affect independence in objectives, policy formulation and limitation on lending to governments. Our results are robust through a series of checks.
Funder
National Natural Science Foundation of China
Social Science Planning Project of Shandong Province
Natural Science Foundation of Shandong Province