Leaning against the Global Financial Cycle

Journal article

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.

Authors: Ferrero, A; Habib, M; Stracca, L; Venditti, F

• Publication status: Accepted
• Peer review status: Peer reviewed
• Publisher: American Economic Association
• Journal: American Economic Journal: Macroeconomics
• Acceptance date: 2026-03-04
• EISSN: 1945-7715
• ISSN: 1945-7707
• Language: English
• Keywords: Global Financial Cycle; emerging markets; institutions