Leaning against the global financial cycle

Arbeitspapier

We study the role and the interaction of the quality of institutions and of counter-cyclical policies in leaning against the Global Financial Cycle (GFC) in Emerging Economies (EMEs). We show that heteroegeneity in institutional strength is a key determinant of the different effects of the GFC on EME domestic financial conditions. Institutional strength also shapes the response in terms of counter-cyclical policies to sudden changes in global financial conditions as well as the effectiveness of such policies. We illustrate in a simple stylised model that countries may in fact decide to undertake ex ante costly structural reforms that reduce their vulnerability to the GFC or react ex post to the financial s hock. However, we also find that the Covid-19 episode seems to deviate somewhat from the general pattern of EME reaction to shifts in the GFC.

Object Details

• ISBN: 978-92-899-5475-4
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2763

Classification and Topics

• Classification: Wirtschaft ; Current Account Adjustment; Short-term Capital Movements ; International Financial Policy: Financial Transactions Tax; Capital Controls ; Monetary Policy ; Financial Institutions and Services: Government Policy and Regulation
• Subject: Global Financial Cycle ; monetary policy ; macro-prudential policies ; foreign-exchange intervention ; capital controls ; emerging markets ; institutions

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ferrero, Andrea ; Habib, Maurizio Michael ; Stracca, Livio ; Venditti, Fabrizio
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2022

Further information

• DOI: doi:10.2866/309962
• Handle: http://hdl.handle.net/10419/278291
• Last update: 10.03.2025, 11:41 AM CET