Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278291 
Year of Publication: 
2022
Series/Report no.: 
ECB Working Paper No. 2763
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
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.
Subjects: 
Global Financial Cycle
monetary policy
macro-prudential policies
foreign-exchange intervention
capital controls
emerging markets
institutions
JEL: 
F32
F38
E52
G28
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-5475-4
Document Type: 
Working Paper

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