Macroeconomic stability of the country: the nexus of institutional and behavioural dimensions

Abstract

The ongoing globalisation, recessions, and fluctuations in world development require the acceptance of timely government interventions and decisions to save the country's macroeconomic stability. The literature analysis has confirmed a gap in research on assessing and comparing macroeconomic stability at different levels of development, especially in terms of studies that consider the behavioural (culture and trust) dimensions and the quality of institutions. This paper aimed to empirically assess how the achievement of macroeconomic stability depends on the quality of institutions, increasing society's trust, and cultural diversity. This study investigated post-communist economies among EU countries and Ukraine (as the candidate for EU) over 2005-2020. Pearson correlation, OLS and FGLS, robustness test output, GEE, and stochastic frontier model were applied to achieve the paper's aims. The findings confirmed that countries with high-quality of institutions had a higher value of macroeconomic stability. In addition, social trust positively affected the relationship between the quality of institutions and macroeconomic stability. At the same time, various national cultural dimensions had different effects on macroeconomic stability. The four indicators of Hofstede Insights (power distance, masculinity, uncertainty avoidance, and indulgence) had a statistically significant impact on macroeconomic stability.