Leaning Against the Global Financial Cycle

Thu, 01 Jan 2026 00:00:00 +0000

This paper investigates how institutional quality shapes (i) the domestic financial and macroeconomic impact of Global Financial Cycle (GFC) shocks on emerging market economies (EMEs) and (ii) the menu of counter-cyclical policies those countries actually deploy — and how effectively — in response. The central motivation is that EMEs face a difficult policy trade-off when global financial conditions tighten: they must balance retaining international investor confidence against stabilizing domestic demand, and policymakers have four instruments available (monetary policy, foreign exchange reserve intervention, macro-prudential policy, and capital controls) whose effectiveness may depend critically on underlying institutional strength.

Livio Stracca | Macro Paper Warehouse

Leaning Against the Global Financial Cycle