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Leaning against the Global Financial Cycle

Author

Listed:
  • Andrea Ferrero
  • Maurizio Michael Habib
  • Livio Stracca
  • Fabrizio Venditti

Abstract

We investigate the impact of institutional quality on shielding emerging economies from the global financial cycle. Our findings indicate that countries with a higher rule of law, characterized by superior contract enforcement and more robust protection of property rights, experience a less severe tightening of domestic financial and macroeconomic conditions when faced with adverse global financial shocks. We explain this outcome through a simplified model that incorporates financial frictions, showing how strong institutions and effective governance alleviate collateral constraints and mitigate the effects of global financial pressures on the domestic economy.

Suggested Citation

  • Andrea Ferrero & Maurizio Michael Habib & Livio Stracca & Fabrizio Venditti, 2026. "Leaning against the Global Financial Cycle," American Economic Journal: Macroeconomics, American Economic Association, vol. 18(4), pages 200-227, October.
    • Handle: RePEc:aea:aejmac:v:18:y:2026:i:4:p:200-227
    DOI: 10.1257/mac.20220388
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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • P14 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Property Rights

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