macroéconomique résilience

Journal of International Money and Finance 148 (2024) 103169
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Journal of International Money and Finance

journal homepage: www.elsevier.com/locate/jimf
The performance of emerging markets during the Fed’s easing and

tightening cycles: A cross-country resilience analysis☆
Joshua Aizenman a, * , Donghyun Park b , Irfan A. Qureshi c , Jamel Saadaoui d ,
Gazi Salah Uddin e
a
Dockson Chair in Economics and International Relations, University of Southern California, University Park, Los Angeles, CA 90089-0043, United
States
b
Economic Research and Development Impact Department, Asian Development Bank, Philippines
c
Public Sector Management & Governance (Sectors Group), Asian Development Bank, Philippines
d
University Paris 8, IEE, LED, France
e
Department of Management & Engineering, Linköping University, SE-581 83 Linköping, Sweden
A R T I C L E I N F O A B S T R A C T
JEL: We investigate the determinants of emerging markets performance during five U.S. Federal
E58 Reserve monetary tightening and easing cycles during 2004–2023. We study how macroeconomic
F31 and institutional conditions of an Emerging Market (EM) at the beginning of a cycle explain EM
F62
resilience during each cycle. More specifically, our baseline cross-sectional regressions examine
Keywords: how those conditions affect three measures of resilience, namely bilateral exchange rate against
Monetary policy cycle
the USD, exchange rate market pressure, and country-specific Morgan Stanley Capital Interna-
Emerging market
Resilience
tional index (MSCI). We then stack the five cross-sections to build a panel database to investigate
Macroeconomic fundamentals potential asymmetry between tightening versus easing cycles. Our evidence indicates that mac-
Federal Reserve roeconomic and institutional variables are associated with EM performance, determinants of
resilience differ during tightening versus easing cycles, and institutions matter more during
difficult times. Our specific findings are largely consistent with economic intuition. For instance,
we find that current account balance, international reserves, and inflation are all important de-
terminants of EM resilience.
1. Introduction
The Global Financial Crisis (GFC) terminated the illusive Great Moderation (Blanchard et al. (2010)), which was followed by the U.
S. Federal Reserve’s alternating tightening and easing cycles shown in Fig. 1. Seven years of easing induced by the GFC (2007–2014)
was followed by four and a half years of tightening (‘Taper Tantrum’ years). Subsequently, three years of easing induced by the Covid-
19 pandemic (2019–2022) led to a major tightening since February 2022, a delayed reaction to rapidly rising inflation in the US.
The authors are deeply grateful to Pongsak Luangaram, Sy-Hoa Ho, Luu Duc Toan Huynh, Rashad Ahmed, Hiro Ito, Linda Goldberg, Gurnain
☆
Kaur Pasricha, and the participants of the May 13 IMF seminar, and the May 20–21 PIER-ADB conference participants “Monetary and Fiscal Policies
in Emerging Markets amid Heightened Uncertainty” for their invaluable suggestions and help with data on exchange rate market pressures.
* Corresponding author.
E-mail addresses: aizenman@usc.edu (J. Aizenman), dpark@adb.org (D. Park), iqureshi@adb.org (I.A. Qureshi), saadaoui@unistra.fr
(J. Saadaoui), gazi.salah.uddin@liu.se (G. Salah Uddin).
https://doi.org/10.1016/j.jimonfin.2024.103169
Available online 16 August 2024

0261-5606/© 2024 Elsevier Ltd. All rights are reserved, including those for text and data mining, AI training, and similar technologies.
J. Aizenman et al. Journal of International Money and Finance 148 (2024) 103169
The VAR analysis of Rey (2015) vividly illustrated that U.S. monetary policy was a key driver of global financial cycles that affected
the leverage of global banks, capital flows, and credit growth in the international financial system. Consequently, the global financial
cycles propagated by U.S. shocks and policies constrained the policy options of financially integrated countries. Emerging markets in
particular were exposed to ‘flight to quality’ at times of heightened financial instability and ‘search for yields’ when the U.S. Fed’s
massive monetary easing in response to GFC pushed the shadow Federal Funds rates toward zero (see Bernanke and Reinhart (2004),
Wu and Xia (2016)).
From the perspective of most emerging markets (EMs) and developing countries, global financial cycles are exogenous shocks that
test their resilience. Our paper investigates the determinants of the relative performance of emerging markets during the Fed’s
monetary tightening-easing cycles during the past two decades. To answer these questions, we investigate how macroeconomic
conditions at the outset of each cycle influence the relative performance of emerging countries. Do ex-ante macroeconomic funda-
mentals explain why some EMs are more resilient than others during monetary cycles? Our baseline cross-sectional regressions
examine how macroeconomic variables affect three measures of resilience, namely bilateral exchange rate against the USD, exchange
rate market pressure (EMP) (Goldberg and Krogstrup, 2023), and country-specific Morgan Stanley Capital International index (MSCI).
We also include institutional factors as additional determinants of EM resilience.1
We contribute to the empirical literature on EM performance in the face of U.S. monetary shocks in a number of different ways.
First, our selected period allows us to better identify determinants of EM resilience because it contains big shocks such as GFC, Taper
Tantrum, and Covid-19 pandemic, and sharp swings in the Fed’s monetary policy. Second, we perform a comparative analysis of the
determinants of EM resilience during the Fed’s tightening versus easing cycles. There is no a priori reason why the determinants should
be the same between the two different types of monetary policy cycles. Third, we take a deep dive into the potential link between
institutions and resilience. Intuitively, sound institutions such as good governance should contribute to resilience.
Our empirical analysis yields a number of interesting findings. The current account balance is an important determinant of EMP
during monetary cycles. Countries with more flexible exchange rate regimes and more developed financial markets experience lower
exchange rate market pressures. Less corrupt countries experienced lower exchange rate market pressure in two out of five cycles.
Countries with higher inflation experienced appreciation of their MSCI indexes in three out of five cycles. This was not the case during
the GFC and Taper Tantrum. Larger current account surpluses and international reserves were associated with greater MSCI index
appreciation during the three last cycles. During the GFC cycle, larger Net International Investment Positions (NIIP) were associated
with better stock market performance. A combination of higher international reserves, higher current account surpluses, and larger net
international investment positions helps emerging countries cope better with exchange market pressures, especially during tightening.
Financial institution development was associated with inferior performance during the first two tightening cycles − before the GFC
and the Taper Tantrum. This is in line with the conjecture that financially more developed countries were more subject to capital
outflows due to ‘flight to safety’. Countries with less religious tensions saw their financial markets perform better during the “Taper
Tantrum” cycle. Countries with fewer internal conflicts and stronger law and order suffered a more significant stock market decline
during the GFC cycle. A possible interpretation is that greater trust in institutions led to a higher appreciation of stock markets during
the Great Moderation. We can similarly explain why countries with better governance experienced worse stock market performance
during the tightening before GFC. Countries with better democratic accountability, lower religious tensions, and stronger law and
order performed better during the easing cycle triggered by the COVID-19 pandemic. We organize this paper as follows: section 2
reviews the literature. Sections 3 and 4 present the empirical methodology and results, respectively. Section 5 concludes.
2. Literature review
Previous literature has examined the impact of U.S. Federal Reserve’s monetary policy on emerging market (EM) macroeconomic
dynamics. Existing studies also sought to identify the characteristics that explain why the impact of such shocks varies across EMs. For
example, Caldara et al. (2023) show that episodes of global tightening are associated with larger economic downturns, worse financial
conditions, and a relatively muted decline in inflation. Ahmed et al. (2023) study the role of FX reserves in buffering the exchange rate
against the US dollar during the 2021–22 Federal Reserve monetary policy tightening. They distinguish between mechanisms through
which FX reserves mitigate currency depreciation. A ‘balance sheet’ channel implies that strong fundamentals linked with large re-
serves reduce currency risk even without using these reserves to intervene. Alternatively, the ‘intervention’ channel suggests that large
reserve countries can directly intervene to protect their currencies against depreciation.2 Similarly, Georgiadis et al. (2024) investigate
the role in the transmission of global risk to the world economy. They show that global risk shocks appreciate the dollar, induce tighter
global financial conditions, and a synchronized contraction of global economic activity. Walerych and Wesołowski (2021) find that the
EM spillovers from the monetary policies of the Fed and European Central Bank are global.
1
There is no unique definition of resilience. We will follow Markus Brunnermeier (2022), who discuss the concept of resilience as the ability to
recover from a shock. In this respect, we will investigate the performance and the ‘recovery’ speed (duration to peak depreciation for example)
during the US monetary cycles. Besides, resilience is context-dependent. For the typical household, resilience may be more related to the speed of
recovery of positive gdp growth, employment and wage level and growth, etc. For the financial sector and households with significant portfolios,
upper middle class and above, the speed of portfolio loss recovery, etc.
2
Ahmed et al. (2023) focus on the role of international reserve holdings to test the validity of the buffer effect. A larger set of macroeconomic
fundamentals is considered in Mishra et al. (2014) and Ahmed et al. (2017), namely: current account balance, fiscal balance, inflation, and foreign
exchange reserves.
2
Fig. 1. Monetary cycles in the US, June 2004 ¡ September 2023. Source: data retrieved from https://www.atlantafed.org/cqer/research/wu-
xia-shadow-federal-funds-rate, and https://fred.stlouisfed.org/series/FEDFUNDS.
In terms of country characteristics that affect the transmission of Fed shocks, the literature has primarily focused on EM monetary
policy regimes (MPR). In this context, inflation targeting (IT) and exchange rate regimes receive the most attention. Aizenman et al.
(2011), for instance, distinguish between group characteristics of the inflation-targeting versus non-targeting EM central banks in
emerging markets. They further distinguish between commodity-exporting IT countries from other IT countries. Alvarez and De
Gregorio (2014) compare the performance of IT and fixed exchange rates in countries in the context of economic resilience. Fratzscher
et al. (2020) include a comprehensive set of policy-side controls, including fiscal rules, exchange rate regimes, and central bank in-
dependence (CBI). Ramos-Francia and García-Verdú (2014) examine how external monetary conditions can be a source of risks to
monetary and financial stability in EMs and how their central banks should respond to such shocks. They also discuss whether EM
currencies can play a more significant international role.
The broader set of country-specific characteristics that drive macroeconomic outcomes must include the economic structure.
Ahmed et al. (2017) suggest that financial institutions, depth, and local currency bond markets may play an important role. Their
results support the findings in Chapter 2 of the IMF (2014) World Economic Outlook (WEO), which finds that the structures of the
investor base and local financial systems matter. Besides financial depth, trade and financial openness also play a major role in
transmitting external shocks. The distinction between commodity importers versus exporters also matters, as Aizenman et al. (2011)
discussed in the context of different policy regimes.
Finally, another branch of the literature analyzes monetary policy shocks. Hoek et al. (2022) study how US interest rates generate
adverse spillovers to EMs. They undertake an event study-type approach around Federal Open Market Committee (FOMC) meetings
and distinguish between two types of shock—i.e. higher rates stemming from stronger US growth versus hikes stemming from hawkish
FED policy or inflationary pressures. They find the latter to be more disruptive for EMs with greater macroeconomic and financial
vulnerabilities. Ahmed et al. (2017), rank EMs according to seven indicators of vulnerability, namely current account deficit, gross
government debt, inflation, change in bank credit to the private sector, the ratio of external debt to exports, foreign exchange reserves,
and the ratio of dollar debt net of international reserves to GDP. Ugazio and Xin (2024) study the impact of US monetary policy
spillovers, in terms of both policy shock and policy news shock.
3. HYPERLINK “SPS:id::Sec2” Methodology and data
3.1. Data
We follow Ahmed et al. (2017) to construct our database for a large sample of industrialized and emerging countries3 over the
different monetary-policy cycles in the US (June 2004-September 2023). On the one hand, we build a database of explained financial
3
The number of countries is subject to variations in the different samples due to data availability. The largest sample is a cross-section of 65
countries; see Appendix B for more details. We keep industrialized countries as a benchmark. Thus, interaction terms with EM specific dummy
variables can reveal significant differences with industrialized countries.
3
Table 1
Descriptive statistics during the first cycle (in white) and the second cycle (in gray).
Obs Obs Mean Mean Median Median SD SD Min Min Max Max
Explained variables:
DXRcycle_1, 2 149 130 − 5.73 9.56 − 9.84 1.33 13.55 17.94 − 48.24 − 30.91 49.70 49.21
EMPcycle_1, 2 40 40 − 0.71 1.48 − 0.79 1.36 2.87 2.56 − 6.65 − 5.22 6.74 5.60
MSCIcycle_1, 2 47 49 72.69 − 9.27 69.72 − 8.30 29.92 43.54 24.91 − 111.3 171.3 69.90
Explanatory variables:
CAB 123 116 − 0.65 0.13 − 1.15 − 2.19 8.70 12.46 − 27.77 − 40.38 37.88 45.59
NIIP 88 90 − 0.32 − 0.21 − 0.30 − 0.24 0.64 0.62 − 1.77 − 1.83 2.46 2.73
Gdeficit 139 123 − 1.88 2.56 − 2.10 0.20 4.36 8.14 − 15.93 − 12.51 17.06 31.83
Gdebt 136 122 68.19 46.88 52.59 36.00 68.6 52.80 0 0 600.1 451.0
CPI 131 121 7.17 6.04 4.14 5.15 11.06 5.73 − 3.50 − 1.40 98.22 53.23
FUELX 117 102 15.36 17.70 2.88 4.65 26.66 28.09 0 0 98.04 99.46
FUELM 126 108 11.73 16.05 11.01 15.75 6.87 8.57 0.54 0.01 34.13 35.04
kaopen 135 115 0.078 0.26 − 0.17 − 0.17 1.45 1.54 − 1.93 − 1.93 2.30 2.30
FI 139 120 0.31 0.34 0.25 0.28 0.20 0.21 0.03 0.04 0.95 0.97
FM 139 120 0.16 0.19 0.038 0.037 0.23 0.26 0 0 0.92 0.90
extconf 107 89 10.17 9.93 10.50 10 1.35 1.21 4.88 6 12 12
corruption 107 89 2.42 2.38 2 2 1.07 1.09 1 0.50 5.50 5.50
demoacc 107 89 3.86 4.21 4 4.50 1.61 1.56 0 0 6 6
ethnictens 107 89 3.78 3.93 4 4 1.36 1.20 0.50 1 6 6
govstab 107 89 8.86 8.52 9 8.50 1.42 1.59 5.04 5.33 11.50 11.50
intconf 107 89 9.28 9.31 9.42 9.50 1.75 1.64 3.46 3 12 12
laworder 107 89 3.48 3.59 3.50 3.50 1.43 1.23 1 1.29 6 6
milpol 107 89 3.66 3.85 4 4 1.81 1.59 0 0 6 6
reltensions 107 89 4.46 4.62 5 5 1.46 1.33 0 1 6 6
ers 137 118 0.50 0.57 0.46 0.53 0.26 0.25 0.09 0.15 1 1
RESGDP 129 112 17.00 20.60 13.74 16.40 15.57 17.29 0.99 2.12 98.35 98.66
IT 148 129 0.13 0.19 0 0 0.34 0.40 0 0 1 1
Note: We restricted the sample to changes in the bilateral exchange rate between − 50% (appreciation) and 50% (depreciation). We use the delta log
for the bilateral exchange rates and the MSCI indexes, and the delta for the EMP. We exclude countries with zero exchange rate variation during the
period. Statistics for explanatory variables are only displayed for samples in which bilateral exchange rates are used. Source: authors’ calculations.
Table 2
Descriptive statistics during the third cycle (in white) and the fourth cycle (in gray).
Obs Obs Mean Mean Median Median SD SD Min Min Max Max
DXRcycle_3, 4 117 126 19.12 5.86 17.73 1.11 10.98 9.97 − 1.97 − 16.24 49.46 39.15
EMPcycle_3, 4 38 36 0.36 2.76 − 0.04 2.45 3.12 3.18 − 5.75 − 2.57 6.51 9.75
MSCIcycle_3, 4 49 50 7.98 19.51 7.53 23.34 21.20 28.03 − 35.08 − 52.13 71.18 74.04
CAB 108 116 − 2.63 − 2.53 − 3.98 − 2.94 11.66 9.10 − 37.61 − 31.83 48.58 39.15
NIIP 90 104 − 0.17 − 0.23 − 0.27 − 0.36 0.87 1.01 − 3.85 − 3.652 3.79 5.43
Gdeficit 113 122 − 1.65 − 1.34 − 2.26 − 1.88 5.89 4.75 − 16.30 − 9.54 33.78 32.15
Gdebt 112 122 44.77 50.54 39.51 46.38 35.88 28.43 0 0 232.4 232.4
CPI 111 116 4.11 3.68 2.95 2.83 4.30 3.68 − 4.30 − 2.82 36.60 23.56
FUELX 99 104 14.78 14.17 3.60 3.91 24.21 22.20 0 0 99.80 95.56
FUELM 101 108 18.76 14.79 19.04 14.52 9.42 7.49 0.69 0.58 51.05 33.19
kaopen 104 116 0.18 0.19 − 0.17 − 0.17 1.58 1.52 − 1.93 − 1.93 2.30 2.30
FI 109 119 0.40 0.42 0.36 0.40 0.22 0.22 0.08 0.08 1 0.97
FM 109 119 0.18 0.19 0.047 0.070 0.25 0.25 0 0 0.87 0.92
extconf 77 85 9.76 9.72 9.92 9.50 1.10 1.05 5.63 6.50 11.50 11.50
corruption 77 85 2.57 2.65 2 2.38 1.21 1.15 1 1 5.50 5.50
demoacc 77 85 4.08 4.12 4 4 1.47 1.36 0.50 0.50 6 6
ethnictens 77 85 3.86 3.91 4 4 1.21 1.13 1 1 6 6
govstab 77 85 7.18 7.15 6.96 6.96 1.25 0.83 4.88 5.83 10.88 9.50
intconf 77 85 8.86 8.87 8.88 8.88 1.48 1.29 5.50 6.21 12 12
laworder 77 85 3.54 3.45 3.50 3 1.26 1.21 1.50 1.50 6 6
milpol 77 85 3.72 3.77 4 4 1.73 1.56 0 0 6 6
reltensions 77 85 4.50 4.50 5 5 1.40 1.38 1 1 6 6
ers 107 116 0.53 0.54 0.46 0.46 0.23 0.24 0.05 0.14 1 1
RESGDP 101 112 24.38 21.06 18.78 18.01 22.02 17.51 1.99 0.37 152.9 117.4
IT 116 125 0.28 0.30 0 0 0.45 0.46 0 0 1 1
Note: We restricted the sample to changes in the bilateral exchange rate between − 50% (appreciation) and 50% (depreciation). We use the delta log
for the bilateral exchange rates and the MSCI indexes, and the delta for the EMP. We exclude countries with zero exchange rate variation during the
period. Statistics for explanatory variables are only displayed for samples in which bilateral exchange rates are used. Source: authors’ calculations.
4
Table 3
Descriptive statistics during the fifth cycle.
Observations Mean Median SD Minimum Maximum
DXRcycle_5 106 7.54 5.98 9.86 − 21.60 46.68
MSCIcycle_5 50 − 1.37 − 3.59 25.95 − 40.92 126.7
CAB 93 − 2.42 − 2.53 8.99 − 40.40 25.43
NIIP 88 − 0.16 − 0.33 1.29 − 3.83 5.74
Gdeficit 102 − 3.89 − 4.57 5.86 − 16.42 40.07
Gdebt 102 60.39 55.80 34.30 0 255.1
CPI 96 4.35 3.84 3.87 − 0.77 25.75
FUELX 86 13.04 2.95 21.53 0 94.63
FUELM 90 13.28 13.08 8.49 0.51 66.42
kaopen 97 0.18 − 0.17 1.52 − 1.93 2.30
FI 100 0.45 0.44 0.21 0.082 0.96
FM 100 0.20 0.056 0.27 0 0.92
extconf 71 9.80 10 0.99 7 11.50
corruption 71 2.77 2.50 1.16 1 6
demoacc 71 4.18 4.50 1.41 0.50 6
ethnictens 71 3.93 4 1.10 2 6
govstab 71 7.05 6.92 1.01 4.71 10
intconf 71 9.07 9.21 1.35 6.08 11.96
laworder 71 3.56 3.46 1.13 1.50 6
milpol 71 3.95 4 1.46 1 6
reltensions 71 4.60 5 1.210 1.50 6
RESGDP 88 28.22 24.04 23.61 0.37 134.6
IT 105 0.33 0 0.47 0 1
Note: we restrict the sample for changes in the bilateral exchange rate between − 50% (appreciation) and 50% (depreciation). We use the delta log for
the bilateral exchange rates and the MSCI indexes, and the delta for the EMP. We removed countries with zero exchange rate variation during the
period. Statistics for explanatory variables are only displayed for samples in which bilateral exchange rates are used. The EMP data are not available
for the entire period during the fifth cycle. Source: authors’ calculations.
variables observed at a monthly frequency, namely the bilateral exchange rate against the USD, the Exchange Rate Market Pressure
(EMP) (Goldberg and Krogstrup, 2023), and the country-specific Morgan Stanley Capital International index (MSCI). On the other
hand, we collect data for ex-ante macroeconomic fundamentals observed at a yearly frequency from the World Bank, the IMF and the
BIS (see Appendix A for the details and the complete list). Furthermore, we add a series of ex-ante institutional variables at a yearly
frequency coming from the International Country Risk Guide database built by the PRS group.
The main ex-ante macroeconomic variables are the current account balance (as a percent of GDP), the reserves-to-GDP ratio, the net
international investment position (as a percent of GDP), the government net lending/borrowing (as a percent of GDP); the general
government gross debt (as a percent of GDP); the consumer price inflation; the fuel exports on total exports; the fuel import on total
imports, the financial openness (Chinn-Ito index, see Chinn and Ito, 2006); the financial development subindexes introduced by
Svirydzenka (2016); and the exchange rate stability measure developed by Aizenman et al. (2013). The ex-ante institutional variables
are the indexes that can be found in the ICRG database. A higher score reflects a better situation regarding country risks, that is, lower
risks. We have external conflicts (war, cross-border conflict), internal conflicts (civil war/coup threat, terrorism/political violence,
civil disorder, foreign pressures), government stability (government cohesion, legislative strength, popular support), corruption,
military in politics, and religious tensions.
The dating of monetary cycles is based on the FED fund rates and the shadow FED funds rates, as mentioned in the introduction.
Consequently, the monetary cycles covered by the study are: (a) the FED tightening I: June 2004 to June 2007; (b) the FED easing I:
July 2007 to May 2014; (c) the FED tightening II: June 2014 to December 2018; (d) the FED easing II: January 2019 to January 2022;
and (e) the FED tightening III: February 2022 to September 2023. In fact, these cycles identify several episodes of financial stress for
emerging countries. The first cycle is before the Global Financial Crisis (GFC) and corresponds to when Great Moderation was still the
dominant narrative. The second cycle has begun to deal with the GFC. The third cycle is the Taper Tantrum. The fourth cycle is the
pandemic cycle. Lastly, the current tightening cycle has been launched to rein in the inflation surge after the COVID-19 pandemic. The
names of the variables and the acronyms used in the following tables are fully described in Appendix A .
Table 1 and Fig. 1 show that the federal fund’s effective rate has increased by about 4 percent in 36 months during the first
monetary cycle. Despite this significant tightening, the bilateral exchange rate has shown an average appreciation. The same evolution
has been observed for the EMP index, where a negative value corresponds to a weighted combination of three factors: first, an
appreciation of the bilateral exchange rate; second, interventions on the FOREX market aimed at limiting the appreciation; and third, a
decrease in the policy rate. A negative value for the EMP can be interpreted as a pressure reduction. Before the Global Financial Crisis
(GFC), we observed average positive stock market developments.
The second monetary cycle spans the period of the GFC. The extent of the monetary easing was considerable with the FED fund rates
at above 5 percent at the beginning of the cycle. The shadow rate was around − 3 percent 82 months later (see Fig. 1). Episodes of
financial stress drive the development of our explained financial variables during the GFC (see Table 1, gray columns). On average, the
5
exchange rate and the EMP registered large depreciations against the US dollar (and the euro for some countries in the EMP index).
Developments in the stock market are unsurprisingly adverse on average. We can note that the holding of international reserves has
‘bounced back’ at the end of the second monetary cycle. During financial stress episodes during the GFC, several emerging countries
have used FX interventions to stabilize their exchange rates (Dominguez et al., 2012). In May 2014, the average level of holding of
international reserves was 3 points higher than during the previous cycle, with a higher cross-sectional standard deviation.
In the third monetary cycle, called the “Taper Tantrum”, the shadow rate increases from around − 3 percent to above 2.5 percent in
54 months. During this second tightening cycle, we can observe that the average exchange rate depreciation is around 20 % and the
minimum value (the maximum appreciation) is below 2 percent (see Table 2). This means that virtually no currencies had appreciated
against the US dollar during the Taper Tantrum. As shown by Miranda-Agrippino and Rey (2020), US monetary policy shocks can
trigger comovements in financial variables that could characterize a ‘Global Financial Cycle’.4 Additionally, the EMP experienced
lower variations than the bilateral exchange rates. The developments in the financial market were less dynamic than in the first cycle.
On average, the level of international reserves is now 4 points higher compared to the end of the previous cycle.
The fourth monetary cycle mainly overlaps the Pandemic crisis. At the beginning of this easing cycle, the FED Fund rate was equal
to 2.4 percent and below 0.1 percent 36 months later. The descriptive statistics show that the fourth monetary cycle differs from the
previous economic cycles. The episodes of financial stress during this period were explained by uncertainty related to the COVID-19
pandemic. In addition, several countries implemented fiscal packages and dollar swap lines to cope with financial turmoil.5 The
variation in bilateral exchange rates and the EMP was quite similar to that observed in the second cycle (GFC). However, the de-
velopments in the stock markets were different from during the GFC cycle, with a positive evolution on average (see Table 2).
During the last monetary cycle of our study in Table 3, the FED fund rates moved from nearly zero in February 2022 to more than 5
percent at the end of our sample in September 2023. During this monetary cycle, the bilateral exchange rate against the dollar
depreciated in most economies, averaging 7 percent. Ahmed et al. (2023) showed that countries with more ex-ante international
reserves have limited their depreciation rate.6 The average level of international reserves is now at 28 percent. This may partially
indicate that countries continuously accumulate reserves to buffer the shocks of external finance (Aizenman et al., 2024). We will come
back later on this point in the empirical results section. The developments in the financial markets were not similar to those of previous
cycles, with almost no variation on average of the MSCI indexes.
3.2. Methodology
We will use first cross-sectional regressions where the explanatory variables would be fundamentals observed before the events,
and the left-hand variable would be the performance of the financial variable of interest over the monetary cycle:
∑
ΔFinVar = c + βj Xi,j + εi
j
where each i denotes a particular country. We use multiple financial indicators to build the dependent variable in alternative
specifications, with the change in each indicator represented by Δ measuring financial performance during the monetary cycle. Xi,j are
a set of explanatory variables, j specific to country i measured in the year prior to the monetary cycle, βj are parameters to be estimated,
and εi are error terms. Note that the cross-section observations in each regression are the countries, and a separate regression is run for
each dependent variable and each subset of explanatory variables j.
Following Ahmed, Coulibaly, and Zlate (2017), we analyze economic performance on a cross-sectional basis and include the initial
macroeconomic and institutional conditions at the beginning of each cycle. Possible candidates for the initial conditions include stock
variables, including the ratio of initial international reserves to GDP, public debt in local currency / foreign currency as a percentage of
GDP, private debt as a percentage of GDP, and other variables.
In the spirit of Alvarez and De Gregorio (2014), we will examine the changing patterns of resilience, comparing the performance of
IT and fixed exchange rates in countries.7 Examining the heterogeneity of the performance of emerging countries during these
monetary cycles can help policymakers build policy space to cope with future cycles. We will identify the asymmetries during
monetary easing and monetary tightening. These asymmetries may provide useful information to policy-makers about excessive
leverage during monetary easing, since monetary easing associated with underregulated leverage growth may increase macroeco-
nomic vulnerability in the next cycle.
4
As noted by Aboud et al. (2024), Chinn et al. (2024) and Goldberg and Hannaoui (2024), the international role of the US dollar has become more
important after the GFC, and this trend should persist during the next years.
5
Aizenman et al. (2011) have shown that international reserves holding, and swap lines may be complements rather than substitutes. Choi et al.
(2022) describe how the new FIMA Repo Facility has extended access to dollar liquidity during the pandemic.
6
Coulibaly et al. (2024) confirm the buffer effect of international reserve holdings on the exchange rate and public debt for 54 African countries.
Exposure to the ’Belt and Road initiative’ will be explored when more comprehensive data will be available on public debt for African economies.
Recently, China has become “an international lender of last resort” as shown by Horn et al. (2023).
7
A natural extension will be to control for crisis dummies, as in Leaven and Valencia (2020), and for the history of crises (possibly by discounting
past crises, in line with the diminishing effects of more distant crises relative to the more recent crises).
6
Table 4
Cross-sectional regressions for bilateral exchange rate variation.
FED tightening I FED easing I FED tightening II FED easing II Fed tightening III
June 2004 – June 2007 July 2007 – May 2014 June 2014 – Dec 2018 Jan 2019 – Jan 2022 Feb 2022 ¡ Sep 2023
Variables DXRcycle_1 DXRcycle_2 DXRcycle_3 DXRcycle_4 DXRcycle_5

CAB − 0.05 − 0.52 0.01 0.47 − 0.28
(0.35) (0.31) (0.15) (0.32) (0.30)
RESGDP − 0.19 − 0.41* − 0.13* 0.002 ¡0.17**
(0.24) (0.23) (0.06) (0.08) (0.07)
NIIP − 1.16 7.58 0.69 0.9 4.26*
(6.85) (5.90) (2.03) (2.30) (2.12)
GDeficit 1.38** 0.41 ¡0.94*** − 0.89 − 0.11
(0.51) (0.53) (0.33) (0.68) (0.59)
GDebt 0.12 − 0.01 − 0.06** − 0.02 0.03
(0.07) (0.13) (0.03) (0.04) (0.07)
CPI ¡1.02** 2.27** 1.14 0.53 1.04*
(0.44) (1.09) (0.71) (0.95) (0.56)
FUELX ¡0.34*** − 0.13 0.16** 0.12 0.06
(0.10) (0.12) (0.06) (0.08) (0.10)
FUELM − 0.36 0.17 ¡0.45*** 0.32 0.33
(0.23) (0.34) (0.13) (0.21) (0.39)
kaopen 0.73 0.12 1.57 − 0.94 − 1.30
(1.85) (2.47) (1.31) (1.05) (1.83)
ers 0.79 − 0.05 ¡28.97*** − 15.72* −
(10.40) (12.40) (7.64) (8.78) −
IT ¡17.49*** 2.92 − 5.30 2.07 − 4.51
(4.62) (8.83) (3.48) (3.16) (3.81)
FI − 15.18 − 42.79 − 14.21 − 20.34 − 3.95
(14.69) (26.20) (16.14) (13.43) (19.43)
FM 13.12 20.53 1.49 4.51 11.02
(8.89) (17.62) (11.24) (10.30) (10.61)
extconf 0.38 − 0.14 2.42* − 0.61 1.52
(2.12) (2.87) (1.29) (1.43) (2.29)
corruption − 2.18 − 2.99 0.33 0.13 − 0.91
(2.19) (3.66) (1.79) (1.20) (2.95)
demoacc − 3.29* 0.32 − 0.29 − 0.31 − 1.4
(1.80) (2.30) (1.88) (1.15) (1.60)
ethnictens − 1.61 − 1.35 0.96 0.12 − 0.95
(1.74) (2.38) (1.32) (1.34) (1.47)
govstab − 1.12 3.49 2.23** − 2.10 0.43
(1.44) (2.38) (0.89) (2.10) (2.45)
intconf ¡3.64** 0.45 − 1.26 3.72** − 1.11
(1.66) (2.51) (1.54) (1.55) (2.30)
laworder 1.27 1.0 4.03* − 1.89 3.65
(2.12) (3.11) (2.15) (1.62) (2.42)
milpol 5.29** 4.07 − 2.90 0.02 1.62
(2.32) (3.23) (1.82) (1.53) (1.66)
reltensions − 0.12 − 1.15 1.37 2.12 − 0.58
(1.57) (2.39) (1.23) (1.37) (1.86)
Constant 53.48** − 17.51 7.51 − 1.98 − 8.35
(26.18) (37.71) (17.61) (25.43) (28.20)
Countries 61 63 58 65 54
R-squared 0.52 0.49 0.68 0.47 0.50
RMSE 12.73 17.23 8.61 9.76 10.71
Note: *** p < 0.01, ** p < 0.05, * p < 0.1. Robust standard errors are in parentheses. Data for the index of exchange rate stability (ers) are not
available for the fifth cycle. Bold indicates a significance level below 5 %. Source: authors’ calculations.
4. Empirical results
4.1. Baseline regressions
Tables 4–9 present the results of the cross-sectional regression for the bilateral exchange rate variation, the variation of the EMP
indexes and the MSCI indexes variation, respectively, during the different monetary cycles.8 As explained in Subsection 3.2, main our
objective is to explain the difference in the cross-country performance and resilience during monetary cycles, and especially tight-
enings, according to ex-ante macroeconomic fundamentals and ex-ante institutional variables. We may briefly recall identifying
8
The pairwise correlation between variables is below 50% in almost all cases. In all the regressions, the null hypothesis of normality for the
residuals is not rejected at conventional significance levels.
7
Table 5
Cross-sectional regressions for the bilateral exchange rate variation − backward stepwise selection.
June 2004 – June 2007 June 2007 – May 2014 June 2014 – Dec 2018 Jan 2019 – Jan 2022 Feb 2022 – Sep 2023
Variables DXRcycle_1 DXRcycle_2 DXRcycle_3 DXRcycle_4 DXRcycle_5

CAB − 0.37 0.49**
(0.23) (0.20)
RESGDP ¡0.41** ¡0.11** ¡0.16***
(0.18-) (0.04-) (0.06)
NIIP 6.41 2.50*
(4.62) (1.28)
Gdeficit 0.94** ¡0.85*** − 0.86
(0.38) (0.17) (0.58)
Gdebt − 0.06**
(0.02)
CPI ¡1.06*** 2.68*** 1.00** 1.09**
(0.32) (0.81) (0.48) (0.44)
FUELX ¡0.26*** − 0.14 0.17*** 0.13*
(0.06) (0.09) (0.05) (0.070)
FUELM ¡0.41*** 0.28*
(0.09) (0.16)
kaopen 1.34 ¡2.68**
(0.95) (1.15)
ers ¡27.36*** ¡17.62** ¡
(6.60) (7.36) ¡
IT ¡16.37*** − 4.92* − 4.56
(3.65) (2.85) (3.25)
FI − 11.30 ¡49.21*** − 13.57 ¡19.58**
(8.46) (14.74) (10.07) (8.15)
FM 24.83** 10.08
(10.14) (6.16)
extconf 2.05*
(1.05)
govstab 2.68* 2.13***
(1.57) (0.77)
intconf ¡2.99** 2.45**
(1.36) (1.04)
laworder 4.21** − 1.77 3.31**
(1.65) (1.13) (1.43)
milpol 2.51 3.88* ¡3.28**
(1.53) (2.12) (1.31)
reltensions 1.34 2.27*
(0.9919) (1.3185)
Constant 30.04*** − 17.73 3.43 − 9.11 − 4.52
(11.21) (15.09) (13.74) (11.37) (6.90)
Countries 61 63 58 65 54
R-squared 0.41 0.45 0.66 0.43 0.44
RMSE 11.93 15.45 8.03 8.88 9.47
Note: *** p < 0.01, ** p < 0.05, * p < 0.1. Robust standard errors are in parentheses. We use a backward stepwise selection procedure for the
variables. Variables with p-values above 20 % are sequentially removed from the model from the highest to the lowest p-value. Data for the index of
exchange rate stability (ers) are not available for the fifth cycle. Bold indicates a significance level below 5 %. Source: authors’ calculations.
several key determinants of economic performance, and resilience will help us to provide sound policy recommendations to cope with
international financial spillovers. In Table 4, we have the full specification of the macroeconomic and institutional determinants of
economic performance. Furthermore, we use a stepwise backward stepwise selection with a threshold value of 20 % for the p-value in
Table 5. We can observe that the explanatory power ranges from 41 % to 68 % according to the R-squared values throughout Tables 4
and 5.
We can note that the negative coefficient on the international reserves holding indicates that the buffer effect of international
reserves holding is confirmed for three cycles out of five. This finding generalizes the results of Ahmed et al. (2023) and is in line with
those of Aizenman et al. (2024). The holding of international reserves has stabilization properties on the exchange rate through both
the balance sheet channel and the intervention channel. Indeed, Ahmed et al. (2023) show that currency interventions were associated
with less exchange depreciation when the ex-ante stock of high reserve was high during the fifth cycle. Furthermore, countries with
higher values for ex-ante consumer price inflation have experienced larger depreciation rates during three cycles out of five. In light of
purchasing power parity (PPP) theory, these last results may reveal that the exchange rate depreciation follows the price differentials
over the medium run.
According to Rose (2020), the success of the inflation-targeting regime was explained by its performance in terms of resilience to
external finance shocks and, especially in terms of limiting the risk of currency crisis. As Rose recalled, a country cannot be forced to
quit an inflation-targeting regime contrary to a fixed-exchange-rate regime. As mentioned by Aizenman et al. (2011), emerging
8
Table 6
Cross-sectional regressions for EMP variation.
FED tightening I FED easing I FED tightening II FED easing II
June 2004 – June 2007 July 2007 – May 2014 June 2014 – Dec 2018 Jan 2019 – Jan 2022
Variables EMPcycle_1 EMPcycle_2 EMPcycle_3 EMPcycle_4

CAB 0.37* 0.08 − 0.33* − 0.03
(0.18) (0.14) (0.18) (0.33)
RESGDP − 0.11* − 0.05 0.04 − 0.02
(0.05) (0.04) (0.06) (0.06)
NIIP − 0.67 0.86 0.66 − 0.03
(2.30) (1.32) (1.41) (1.94)
Gdeficit 0.15 0.07 0.52 0.36
(0.22) (0.17) (0.34) (0.48)
Gdebt 0.05* 0.01 − 0.01 0.01
(0.03) (0.02) (0.02) (0.02)
CPI 0.02 − 0.08 0.24 − 0.08
(0.23) (0.37) (0.30) (0.65)
FUELX − 0.12* − 0.01 0.01 0.06
(0.06) (0.05) (0.04) (0.06)
FUELM − 0.27* 0.13 0.003 − 0.05
(0.14) (0.078) (0.10) (0.14)
kaopen − 0.26 0.34 − 0.84 − 0.29
(0.63) (0.40) (0.85) (1.10)
ers − 7.94 2.18 ¡11.05** − 7.51
(5.54) (1.92) (3.97) (7.29)
IT − 0.77 2.70 − 1.33 − 1.84
(1.83) (2.08) (2.48) (2.48)
FI 2.76 3.76 16.85*** − 1.62
(4.67) (6.66) (4.72) (9.06)
FM − 2.95 − 7.72* ¡9.66** 1.69
(3.74) (4.16) (3.25) (6.97)
extconf − 1.89* 0.47 − 0.54 − 0.75
(0.97) (0.72) (0.69) (0.72)
corruption − 1.07* ¡1.88*** 0.87 1.14
(0.51) (0.59) (0.73) (1.56)
demoacc − 1.54* − 0.46 − 0.03 − 0.38
(0.79) (0.77) (0.85) (0.83)
ethnictens 0.01 − 0.75 − 0.82 − 0.91
(0.44) (0.66) (0.67) (1.17)
govstab − 1.19 0.71 0.19 − 0.81
(0.77) (0.47) (0.81) (1.24)
intconf − 0.23 − 0.62 − 0.21 0.83
(0.48) (0.67) (0.70) (1.19)
laworder 0.02 1.59* 0.49 − 0.78
(0.73) (0.87) (1.18) (1.13)
milpol 1.005 1.43* − 0.76 − 0.37
(0.59) (0.77) (1.10) (0.99)
reltensions − 0.65 0.39 1.55* − 0.16
(0.57) (0.68) (0.80) (1.03)
Constant 47.99*** − 9.93 0.29 21.31
(13.27) (8.60) (12.11) (16.81)
Countries 34 37 36 35
R-squared 0.82 0.63 0.75- 0.52
RMSE 2.30 2.55 2.62 3.7
Note: *** p < 0.01, ** p < 0.05, * p < 0.1. Robust standard errors are in parentheses. Data for the EMP indexes are not available during the fifth cycle.
Bold indicates a significance level below 5 %. Source: authors’ calculations.
countries have followed a mixed strategy for their nominal anchor. However, the policy response to exchange rate depreciations to
limit imported inflation was more constrained for countries without an inflation-targeting regime. Consistent with these results, before
the GFC-induced monetary cycle, being an inflation targeter before entering the cycle was associated with lower exchange rate
depreciation.
Two points can be mentioned to assess the respective influence of inflation targeting during these monetary cycles. The first one is
the distinction between de jure inflation targeters and de facto inflation targeters. Indeed, this distinction may be crucial as some
countries declare to be inflation targeters, but constantly miss the inflation target, Turkey being a prime example. The second point
related to the performance of inflation targeters is the distinction between ‘young’ and ‘old’ inflation targeters. One possible conjecture
would be that the dynamics gains in terms of resilience increase with time and with the credibility of the inflation-targeting regime (‘de
jure’ versus ‘de facto’).
In light of this possible complementarity between inflation-targeting regimes and fixed-exchange rate regimes (Aizenman et al.,
2011), we can note that less flexible exchange rate regimes played an important role during the Taper tantrum and the Pandemic
9
Table 7
Cross-sectional regressions for the EMP variation − backward stepwise selection.
FED tightening I FED easing I FED tightening II FED easing II
June 2004 – June 2007 July 2007 – May 2014 June 2014 – Dec 2018 Jan 2019 – Jan 2022
Variables EMPcycle_1 EMPcycle_2 EMPcycle_3 EMPcycle_4

CAB 0.28*** 0.14*** ¡0.36***
(0.07) (0.05) (0.09)
RESGDP ¡0.08*** ¡0.06*
(0.02) (0.03)
NIIP
GDeficit 0.61***
(0.12)
Gdebt 0.04***
(0.01)
CPI 0.26
(0.19)
FUELX ¡0.09*** 0.08***
(0.02) (0.02)
FUELM ¡0.21*** 0.13***
(0.05) (0.04)
kaopen 0.49*
(0.27)
ers ¡5.51*** ¡7.82*** ¡5.58***
(1.71) (2.23) (1.95)
IT 1.21 − 2.91*
(0.86) (1.50)
FI 6.74* 15.81***
(3.63) (4.74)
FM ¡7.36*** ¡5.87**
(2.00) (2.68)
extconf ¡1.72*** 0.96*
(0.42) (0.48)
corruption ¡0.90** ¡1.94*** 0.71
(0.33) (0.47) (0.50)
demoacc ¡1.34*** − 0.99**
(0.29) (0.44)
ethnictens − 0.58
(0.42)
govstab ¡0.84***
(0.25)
intconf ¡0.98**
(0.41)
laworder 1.60***
(0.50)
milpol 1.38** ¡1.15***
(0.53) (0.41)
reltensions 0.99**
(0.47)
Constant 38.59*** − 3.54 − 1.03 4.18***
(7.15) (4.03) (3.53) (1.05)
R-squared 0.75 0.57 0.70 0.30
RMSE 1.84 2.14 2.13 2.74
Note: *** p < 0.01, ** p < 0.05, * p < 0.1. Robust standard errors are in parentheses. Data for the EMP indexes are not available during the fifth cycle.
We use a backward stepwise selection procedure for the variables. Variables with p-values above 20 % are sequentially removed from the model from
the highest to the lowest p-value. Bold indicates a significance level below 5 %. Source: authors’ calculations.
monetary cycles. Indeed, we found that the exchange rate depreciation was more limited in countries with higher ex-ante exchange
rate stability.9 This empirical evidence shows that the relative merits of inflation-targeting and flexible exchange rate regimes vary
over time. The stabilizing properties of these different regimes may evolve over the different monetary cycles. We may also suspect the
presence of non-linearities.
Tables 6 and 7 show that the explanatory power for EMP regression ranges from 30 percent to 80 percent.10 The EMP index
considers the interdependence between bilateral exchange rates, foreign exchange intervention, and policy rate changes. As fully
described by Goldberg and Krogstrup (2022), the EMP index can be seen as a comprehensive exchange rate policy index. The weights
for bilateral exchange rates, foreign exchange intervention (FXI), and policy rate changes are framed in a model of supply and demand
9
The data for the Exchange Rate Stability are not available during the fifth cycle.
10
The data for the EMP indexes are not available during the fifth cycle.
10
Table 8
Cross-sectional regressions for the MSCI index variation.
June 2004 – June 2007 July 2007 – May 2014 June 2014 – Dec 2018 Jan 2019 – Jan 2022 Feb 2022 – Sep 2023
Variables MSCIcycle_1 MSCIcycle_2 MSCIcycle_3 MSCIcycle_4 MSCIcycle_5

CAB − 1.58 0.80 2.10 3.70*** 1.01
(1.40) (1.31) (1.37) (1.23) (0.77)
RESGDP 0.37 − 0.06 0.45 − 0.03 − 0.15
(0.37) (0.43) (0.39) (0.26) (0.17)
NIIP 10.41 16.38 − 4.64 − 3.71 − 2.86
(10.42) (13.25) (10.58) (6.45) (4.13)
Gdeficit − 3.34* − 1.36 − 1.63 − 0.78 0.60
(1.73) (1.89) (2.01) (1.75) (1.61)
Gdebt − 0.22 ¡0.48** 0.15 0.02 0.11
(0.15) (0.21) (0.12) (0.12) (0.09)
CPI − 0.89 2.80 2.27 2.43** 4.24*
(1.29) (3.14) (3.09) (1.09) (2.30)
FUELX 1.33** 0.14 − 0.20 − 0.14 − 0.25
(0.51) (0.51) (0.26) (0.24) (0.23)
FUELM 0.60 0.64 0.19 − 0.93 − 1.69
(0.66) (0.88) (0.53) (0.76) (1.40)
kaopen 3.59 − 4.23 − 8.08 − 11.10 2.56
(4.53) (8.07) (5.61) (8.22) (7.02)
ers − 13.90 − 65.81 20.88 25.31 −
(23.32) (50.57) (24.91) (27.13) −
IT − 27.12 − 12.50 17.85 10.39 15.87
(16.17) (29.59) (13.32) (10.71) (11.23)
FI ¡74.7** 48.16 − 81.57 − 12.89 13.03
(30.87) (59.86) (48.97) (50.09) (49.68)
FM 4.01 17.15 34.07 25.22 18.51
(33.74) (39.51) (32.26) (39.46) (27.60)
extconf − 0.66 2.81 − 3.51 − 3.92 − 7.48
(5.39) (8.18) (6.00) (4.38) (4.54)
corruption 7.04 9.45 12.59* 0.02 − 1.32
(6.99) (13.14) (6.77) (6.15) (8.20)
demoacc 2.25 0.77 2.45 10.44** 0.40
(4.01) (6.68) (5.05) (4.37) (4.63)
ethnictens 0.28 − 3.08 − 7.20 − 5.01 1.04
(3.86) (5.39) (6.74) (4.81) (6.31)
govstab − 4.76 − 3.66 ¡9.34** 4.80 1.72
(4.14) (5.94) (4.33) (5.00) (5.45)
intconf 5.28 − 9.57 8.12* 1.38 0.11
(5.60) (7.84) (4.66) (5.68) (7.10)
laworder − 8.27 − 10.81 − 2.26 10.19 5.79
(4.91) (10.96) (6.88) (7.09) (9.55)
milpol − 6.97 − 8.39 − 6.34 − 2.68 − 4.75
(5.72) (8.81) (6.59) (5.59) (8.24)
reltensions 3.47 2.11 11.12* 8.20 − 3.69
(4.88) (5.95) (5.72) (5.81) (5.29)
Constant 132.29 152.12 − 15.00 − 99.38 45.04
(76.17) (110.46) (77.58) (77.55) (95.19)
Countries 39 44 45 44 44
R-squared 0.78 0.74 0.44 0.64 0.55
RMSE 20.24 31.29 21.86 21.73 23.99
Note: *** p < 0.01, ** p < 0.05, * p < 0.1. Robust standard errors are in parentheses. Bold indicates a significance level below 5 %. Source: authors’
calculations.
for foreign currency: “Any given excess supply or demand for a currency − an international capital flow pressure − can be offset by an
equivalent amount of FXI, or by an endogenous exchange rate movement or change in the domestic monetary policy rate sufficient to
generate an offsetting private balance of payments flow” (Goldberg and Krogstrup, 2022). Consequently, the EMP index can capture
dimensions of international financial spillovers other than simple bilateral exchange rates.
We find that the current account balance is now an important determinant of EMP variations during monetary cycles. An ex-
ante current account surplus can offer more room for maneuvering intervention during the monetary cycle, especially during tight-
ening, to cope with flight-to-quality movements. We observe that countries with less flexible exchange rate regimes and mor-
e developed financial markets experience less exchange rate market pressures. In light of the previous discussion on the relative merits
of inflation-targeting regimes and less flexible exchange rate regimes, we found that exchange rate stability is associated with fewer
11
Table 9
Cross-sectional regressions for the MSCI variation − backward stepwise selection.
Variables MSCIcycle_1 MSCIcycle_2 MSCIcycle_3 MSCIcycle_4 MSCIcycle_5

CAB 1.89* 2.83*** 1.21**
(1.08) (0.77) (0.58)
RESGDP 0.32**
(0.14)
NIIP 20.60*** ¡5.26**
(6.39) (2.05)
Gdeficit − 1.78* − 2.06
(0.93) (1.32)
Gdebt − 0.24* 0.13* 0.13*
(0.12) (0.07) (0.06)
CPI 4.43** 3.27*** 4.08**
(2.15) (1.03) (1.73)
FUELX 0.91** − 0.20
(0.33) (0.15)
FUELM − 0.64* − 1.61*
(0.37) (0.83)
kaopen − 6.35* − 6.14 − 6.97*
(3.73) (3.66) (4.09)
ers ¡26.26** ¡56.51***
(11.92) (13.64)
IT –22.54** 12.80 15.11**
(8.94) (7.97) (7.31)
FI ¡53.18*** 43.50 ¡81.34**
(11.26) (28.90) (38.65)
FM 38.48 22.12
(24.90) (16.26)
extconf − 5.14* − 6.59*
(2.55) (3.63)
corruption 8.85 9.10*
(5.68) (4.58)
demoacc 10.79***
(2.82)
ethnictens ¡8.28**
(3.80)
govstab ¡7.15** ¡9.93***
(2.81) (2.92)
intconf ¡10.58** 6.38
(4.12) (3.95)
laworder ¡11.13** 8.61* 7.92
(5.34) (4.57) (5.06)
milpol − 6.60 − 6.16
(4.89) (5.21)
reltensions 10.63*** 4.59*
(3.83) (2.70)
Constant 179.04*** 122.67*** 12.31 − 35.69 32.72
(30.15) (35.30) (26.21) (31.95) (40.23)
Countries 39 44 45 44 44
R-squared 0.72 0.69 0.40 0.55 0.53
RMSE 16.47 27.16 19.50 18.82 20.43
variables. The variables with p-values above 20 % are sequentially removed from the model starting from the highest to the lowest p-value. Bold
indicates a significance level below 5 %. Source: authors’ calculations.
exchange rate pressures in three cycles out of five.11

For the institutional variables, countries with higher levels of corruption rating (less corruption) experience less exchange rate
market pressure in two cycles out of five. The difference between financial institution development and financial market development
can provide interesting insights. More developed financial markets help to cope with pressures. Besides, financial institution devel-
opment is associated with higher pressures. The influence of institutional variables depends on the monetary cycle. There is a larger,
11
In Appendix C, we provide further evidence for the GFC cycle with estimates before and after the Zero Lower Bound (ZLB).
12
Table 10
Cross-sectional regressions for the time to peak depreciation.
Variables Time to peak Time to peak Time to peak Time to peak Time to peak
CAB − 0.23 − 0.23 0.37 0.63* − 0.22*
(0.28) (0.62) (0.23) (0.32) (0.11)
RESGDP − 0.15 − 0.30 0.01 − 0.05 − 0.02
(0.15) (0.30) (0.09) (0.07) (0.03)
NIIP − 3.21 2.71 − 4.92 − 1.47 1.90**
(5.66) (9.89) (3.65) (3.57) (0.71)
GDeficit 0.64* 0.05 ¡1.33*** − 0.50 − 0.20
(0.35) (1.00) (0.48) (0.48) (0.18)
GDebt 0.07 − 0.04 − 0.02 0.07 0.04***
(0.06) (0.15) (0.04) (0.04) (0.01)
CPI − 0.40 3.03* 2.01*** − 0.27 − 0.05
(0.37) (1.75) (0.68) (0.79) (0.17)
FUELX ¡0.32*** − 0.09 0.07 0.09 0.06*
(0.07) (0.21) (0.08) (0.08) (0.03)
FUELM 0.02 0.46 ¡0.41** 0.24 0.22*
(0.20) (0.52) (0.16) (0.16) (0.12)
kaopen 0.62 − 0.49 3.75** − 0.24 0.46
(1.35) (4.56) (1.65) (1.14) (0.71)
ers − 2.28 − 5.83 9.67 − 0.66 −
(8.17) (20.37) (11.31) (8.10) −
IT ¡11.55*** − 5.17 ¡10.42** 0.71 ¡3.20**
(3.73) (12.41) (4.98) (4.02) (1.51)
FI − 3.50 –33.11 − 35.06* − 13.02 ¡24.31***
(13.57) (33.95) (18.53) (12.41) (7.70)
FM 4.70 4.18 26.40 − 2.44 9.82**
(8.18) (27.28) (15.73) (10.01) (4.35)
extconf 0.48 0.72 5.83*** − 0.91 0.25
(1.66) (5.76) (2.01) (1.18) (0.76)
corruption 1.04 − 1.12 − 0.07 0.40 − 1.05
(1.50) (6.82) (2.22) (1.82) (1.23)
demoacc − 0.75 − 0.01 − 0.04 − 0.33 − 0.01
(1.29) (4.67) (2.07) (1.51) (0.82)
ethnictens − 0.73 − 2.33 5.64** − 0.67 − 0.91
(1.36) (3.50) (2.22) (1.47) (0.68)
govstab 1.09 3.74 − 0.41 − 0.89 − 0.29
(1.06) (3.86) (1.58) (1.86) (0.85)
intconf − 2.71* 2.25 − 2.72 2.39 1.40
(1.35) (4.33) (2.26) (1.88) (0.9287)
laworder 0.73 − 0.03 1.91 − 3.06 2.18*
(1.66) (5.64) (2.29) (1.89) (1.18)
milpol 2.37 3.16 ¡4.96** 0.40 − 0.73
(1.80) (4.74) (2.07) (1.70) (0.94)
reltensions − 0.97 − 1.69 − 2.69 1.22 0.03
(1.21) (3.10) (1.63) (1.68) (0.74)
Constant 28.70 − 7.60 11.91 19.55 2.64
(19.28) (61.64) (27.83) (22.55) (12.39)
Countries 61 63 58 65 54
R-squared 0.53 0.43 0.69 0.42 0.62
RMSE 9.67 27.33 11.20 9.94 4.19
Note: *** p < 0.01, ** p < 0.05, * p < 0.1. Robust standard errors are in parentheses. Data for the index of exchange rate stability (ers) are not
available for the fifth cycle. Bold indicates a significance level below 5 %. Source: authors’ calculations.
significant positive association during the GFC. This may reveal that institutional variables may play a more important role during
large recessions and episodes of acute financial stress.12
In Tables 8 and 9, we can see that countries with higher levels of CPI inflation have experienced an appreciation of their MSCI
indexes in three cycles out of five. This was not the case during the GFC during the Taper tantrum. For countries with larger surpluses in
the current account balance and ex-ante larger holdings of international reserves, the MSCI indexes have appreciated during the three
last cycles. During the second cycle, the GFC cycle, large NIIPs were associated with better performance of their stock markets. In fact, a
combination of international reserves, current account surpluses, or positive net international investment positions can help emerging
12
This may be illustrated by the famous Warren buffet’s quote: “A rising tide floats all boats….. only when the tide goes out do you discover who’s
been swimming naked.” The role of institution quality may be hidden during monetary easing. Large episodes of financial and economic stress may
reveal the importance of good institutions.
13
Table 11
Cross-sectional regressions for the time to peak depreciation − backward stepwise.
Variables Time to peak Time to peak Time to peak Time to peak Time to peak
CAB − 0.27* 0.38* 0.29** ¡0.21**
(0.15) (0.21) (0.14) (0.09)
RESGDP − 0.17 − 0.23 ¡0.14***
(0.11) (0.16) (0.04)
NIIP − 4.35* 1.66***
(2.37) (0.47)
GDeficit 0.70** ¡1.13***
(0.31) (0.33)
GDebt 0.09* − 0.04 0.05 0.043***
(0.04) (0.03) (0.03) (0.01-)
CPI − 0.45 4.57*** 1.98***
(0.27) (0.93) (0.57)
FUELX ¡0.31*** 0.065 0.041
(0.05) (0.04) (0.02)
FUELM ¡0.42*** 0.23* 0.20*
(0.14) (0.13) (0.10)
kaopen 3.53**
(1.53)
ers
IT ¡10.58*** ¡12.33*** − 2.22*
(2.65) (3.67) (1.20)
FI − 31.81* –23.91***
(17.03) (5.58)
FM 25.89* 9.41**
(13.25) (3.77)
extconf 5.29***
(1.81)
corruption − 1.13
(0.85)
demoacc
ethnictens 5.74*** − 0.85
(1.91) (0.52)
govstab 1.22 3.52*
(0.79) (2.09)
intconf − 2.37** − 2.94 1.84* 1.13*
(1.041) (1.91) (0.99) (0.58)
laworder ¡4.08*** 1.97**
(0.98) (0.78)
milpol 1.71 ¡3.96**
(1.23) (1.61)
reltensions − 2.61
(1.56)
Constant 27.09** − 10.40 24.78 12.87 3.08
(11.58) (14.59) (17.30) (9.96) (5.60)
Countries 61 63 58 65 54
R-squared 0.49 0.35 0.67 0.37 0.58
RMSE 8.75 23.96 10.56 8.98 3.92
variables. Variables with p-values above 20 % are sequentially removed from the model from the highest to the lowest p-value. Data for the index of
exchange rate stability (ers) are not available for the fifth cycle. Bold indicates a significance level below 5 %. Source: authors’ calculations.
countries cope with stock market pressures, especially during tightening episodes.
The development of financial institutions was associated with inferior performance and resilience during the first two tightenings,
namely, before the GFC and the ‘Taper Tantrum’. We can conjecture that countries with a higher degree of development in their
financial institutions may be subject to a higher movement of mistrust in the financial markets, especially emerging countries that have
an intermediate level in development of their financial institutions. Furthermore, the institution’s role was vital during the GFC and the
“Taper Tantrum” cycle. In addition to the financial institution variable, the institutional variables had some significance. For example,
in countries with less religious tensions (i.e., a higher score for the variable relations), their financial markets performed better than
14
Table 12
Cross-sectional regressions for the time to lowest point in equity MSCI indexes.
Variables Time to low Time to low Time to low Time to low Time to low
CAB 0.02 − 0.79 − 0.19 − 0.23 − 0.33
(0.09) (0.60) (0.66) (0.29) (0.20)
RESGDP − 0.02 0.46** 0.04 − 0.04 0.05*
(0.02) (0.18) (0.22) (0.06) (0.02)
NIIP − 0.06 − 7.10 0.62 1.99 − 0.96
(0.63) (5.79) (6.76) (1.26) (0.73)
GDeficit 0.04 1.40* 0.12 − 0.46 0.39
(0.09) (0.74) (0.85) (0.44) (0.33)
GDebt 0.02* 0.22 0.02 − 0.01 − 0.01
(0.01) (0.15) (0.09) (0.02) (0.02)
CPI ¡0.21*** − 2.58 1.34 0.47 − 0.32
(0.07) (1.89) (1.61) (0.28) (0.29)
FUELX − 0.02 − 0.16 0.02 − 0.01 0.12***
(0.02) (0.23) (0.16) (0.04) (0.04)
FUELM − 0.03 0.09 − 0.25 0.18 0.24
(0.03) (0.49) (0.36) (0.19) (0.26)
kaopen − 0.44 4.57 4.16 4.00** 0.10
(0.26) (4.82) (3.40) (1.49) (1.02)
ers 0.00 23.04 − 1.71 − 11.70* −
(1.03) (33.16) (13.95) (5.72) −
IT − 0.30 − 0.48 3.72 0.07 − 2.34
(0.59) (15.52) (7.86) (3.28) (2.13)
FI − 0.03 − 16.29 23.40 1.21 − 6.25
(1.74) (22.00) (21.14) (10.71) (10.32)
FM 1.82 − 21.59 − 20.04 − 2.07 6.56
(1.73) (25.73) (17.25) (6.07) (5.34)
extconf 0.21 − 0.87 3.38 4.08*** 1.25
(0.25) (4.23) (4.00) (1.13) (0.93)
corruption − 0.35 − 4.85 ¡9.09** − 2.64* 0.32
(0.40) (7.70) (3.56) (1.27) (1.76)
demoacc 0.07 8.51** 1.49 − 1.61 − 1.37
(0.26) (4.06) (3.14) (1.14) (1.01)
ethnictens − 0.08 0.43 0.66 2.28** − 1.12
(0.19) (3.20) (3.23) (1.04) (1.15)
govstab 0.18 3.63 5.58* − 1.01 − 1.35
(0.25) (3.19) (2.90) (1.29) (1.11)
intconf 0.08 0.16 − 3.28 ¡3.25** − 1.54
(0.31) (3.92) (2.77) (1.38) (1.24)
laworder 0.27 4.88 6.08 0.86 − 0.65
(0.28) (7.33) (3.97) (1.26) (1.57)
milpol − 0.63 − 6.58 − 2.94 1.13 1.31
(0.38) (5.01) (5.03) (1.53) (1.17)
reltensions 0.47* 0.31 − 1.04 ¡3.40** 0.62
(0.26) (3.55) (3.77) (1.21) (0.97)
Constant − 2.28 − 20.00 − 21.29 24.45 23.09
(3.28) (55.84) (53.14) (19.78) (15.19)
Countries 39 44 45 44 44
R-squared 0.68 0.60 0.52 0.71 0.49
RMSE 1.10 17.26 12.25 4.60 4.32
Note: *** p < 0.01, ** p < 0.05, * p < 0.1. Robust standard errors are in parentheses. Bold indicates a significance level below 5 %. Source: authors’
calculations.
other countries during the “Taper Tantrum” cycle.

Furthermore, countries with less internal conflict (i.e., a better score in the intconf variable) and a better score in terms of ‘Law and
Order’ have experienced a more significant decline in their stock market during the GFC cycle.13 We can also mention that countries
with better governance stability have experienced worsened performance on the stock markets over the first cycle, the tightening
before the GFC. Finally, countries with better democratic accountability, less religious tensions,14 and a better score in the variable
‘law order’ have experienced better performance during the easing cycle induced by the COVID-19 pandemic.
Finally, it could be useful to provide an overview of the results discovered in our research as we run several cross-country
13
A possible interpretation is that they trusted their institutions more, thereby experiencing a higher appreciation of their stock markets during the
great moderation..
14
At the 10 percent level.
15
Table 13
Cross-sectional regressions for the time to lowest point in equity MSCI − backward stepwise.
Variables Time to low Time to low Time to low Time to low Time to low
CAB ¡0.84** − 0.20
(0.32) (0.15)
RESGDP ¡0.02** 0.68*** 0.03*
(0.01) (0.16) (0.02)
NIIP ¡10.69**
(4.02)
GDeficit 1.24**
(0.51)
GDebt 0.02*** 0.24***
(0.01) (0.08)
CPI ¡0.23*** − 2.19* 1.07 0.39***
(0.06) (1.12) (0.65) (0.13)
FUELX 0.08***
(0.02)
FUELM 0.21*
(0.11)
kaopen ¡0.37** 4.42** 3.33***
(0.16) (2.10) (1.01)
ers 30.99*** − 7.23**
(8.59) (3.11)
IT 4.96
(2.96)
FI 21.32
(15.08)
FM 2.14** − 18.19
(0.97) (12.30)
extconf 0.24 3.34 4.00***
(0.14) (2.15) (0.95)
corruption ¡8.50*** − 1.32
(2.20) (0.80)
demoacc 7.07** − 1.03
(3.35) (0.71)
ethnictens 1.50*
(0.86)
govstab 0.26* 4.69*** − 0.96**
(0.12) (1.53) (0.44)
intconf − 2.72 ¡3.47*** − 0.84
(1.77) (0.93) (0.70)
laworder 5.31*
(2.98)
milpol ¡0.51** − 5.86 − 3.09*
(0.25) (4.01) (1.74)
reltensions 0.39** ¡2.46***
(0.15) (0.89)
Constant − 3.53* − 12.29 − 15.56 17.20** 21.06***
(1.99) (11.05) (19.89) (7.23) (6.96)
Countries 39 44 45 44 44
R-squared 0.57 0.50 0.49 0.66 0.29
RMSE 0.95 15.26 10.27 4.08 3.84
variables. The variables with p-values above 20 % are sequentially removed from the model starting from the highest to the lowest p-value. Bold
indicates a significance level below 5 %. Source: authors’ calculations.
regressions for three macro-financial variables. The general findings are as follows in the models with backward stepwise selection
tables in Tables 5, 7, and 9. First, cross-country heterogeneity in the ex-ante macroeconomic fundamentals and institutional variables
has some explanatory power in explaining the differences in the performance and resilience of a large cross-section of emerging
countries during the different US monetary cycles. Especially, the relative merits of inflation-targeting regimes and less flexible ex-
change rate regimes vary over time.
Second, these determinants are asymmetric during tightenings and easings, which may indicate that during tightenings, especially
more recent tightenings due to dollar dominance, the resilience of countries is revealed. That being said, the influence of holdings of
international reserves, CPI inflation, and current balance are well-defined during several monetary cycles for our three explained
variables.
Third, the significance of ex-ante institutional variables increases during the GFC and the ‘Taper Tantrum’ monetary cycles, which
may indicate that the benefits of having good institutions can only be revealed during difficult times (when the tide is low). This
16
Fig. 2. Asymmetries during tightening cycles for the bilateral exchange rate. Note: with the data sample of Appendix C for the 5 cycles. The
score of Government Stability is observed one year before each cycle. Source: authors’ calculations.
Fig. 3. Asymmetries during tightening cycles for the MSCI index. Note: with the data sample of Appendix D for the 5 cycles. The score of
Government Stability is observed one year before each cycle. Source: authors’ calculations.
potential asymmetry may be related to the real-time reaction of policymakers in the face of unexpected events. This ‘de facto’ quality of
institutions may be the yardstick on which resilience and performance should be evaluated.
For the sake of completeness, we compute two other measures of resilience in Tables 10 to 13. First, we compute the number of
months required to reach peak depreciation in Tables 10 and 11. Second, we compute the number of months required to reach the
lowest point in the equity MSCI index in Tables 12 and 13. Interestingly, we can note that being an inflation targeter is associated with
a reduction of the number of months necessary to reach peak depreciation.
4.2. Panel data regressions
After exploring cross-sectional regressions, we stack the cross-sections to build an unbalanced panel database where the time
dimension will be our five cycles, so T=5 or 4 (depending on data availability). We preserve the chronological structure of the data as
the US monetary cycles are observed at the same time for all the countries. Thus, we explore the potential asymmetries between
monetary cycles. Thanks to dummy variables for tightening and easing episodes. Figs. 2 and 3 present graphical evidence showing that
the benefit of having a better score in the government stability variable only appears during tightening by limiting exchange rate
depreciation and providing an expansion of the stock market.
Tables 14 to 16 provide empirical evidence that confirms our preliminary graphical evidence. The benefit of having better gov-
ernment stability only appears during bad times for the exchange rate and the stock market indexes. For the exchange rate market
17
Table 14
Panel evidence for the bilateral exchange rate.
Tightening cycles Easing cycles
Variables DXR 4 Cycles DXR 4 Cycles

CAB ¡0.33** − 0.33
(0.15) (0.20)
tight 41.97***
(12.93)
c.CAB#c.tight − 0.01
(0.25)
kaopen − 1.41 − 1.31
(1.04) (1.15)
c.kaopen#c.tight 0.09
(1.55)
NIIP − 1.65 4.87*
(1.68) (2.53)
c.NIIP#c.tight 6.52**
(3.04)
FUELM 0.21 0.48***
(0.16) (0.18)
c.FUELM#c.tight 0.26
(0.24)
Gdebt − 0.06 − 0.03
(0.04) (0.04)
c.GDebt#c.tight 0.03
(0.06)
govstab 2.19* − 4.05***
(1.15) (0.94)
c.govstab#c.tight ¡6.24***
(1.49)
Constant − 7.98 34.00***
(9.08) (9.19)
Countries (max.) 83 83
Observations 247 247
R-squared 0.20 0.20
RMSE 16.51 16.51
Note: *** p < 0.01, ** p < 0.05, * p < 0.1. Robust standard errors are in parentheses. We use a backward
stepwise selection procedure for the variables. The variables with p-values above 20 % are sequentially
removed from the model starting from the highest to the lowest p-value. Bold indicates a significance
level below 5 %. Only the four first cycles are included, as we use the ers variable in the backward
stepwise selection procedure. The dummies ‘tight’ and ‘easy’ refer to tightening and easing cycles,
respectively. Source: authors’ calculations.
pressure index, the financial institutions variable is associated with an increase of pressures and democratic accountability is asso-
ciated with a reduction of pressures, in line with the cross-sectional regressions.15
4.3. Robustness checks
In Appendix E, we present several robustness check results where we pooled all the cycles (column 1), pooled the tightening cycles
(column 2), pooled the easing cycles (column 3), assumed a homogeneous interaction between tightening cycles and the main
explanatory variables (column 4), and assumed a heterogeneous interaction between tightening cycles and the main explanatory
variables (column 5) for the bilateral exchange rate in Table E1, and for the MSCI indexes in Table E2. Overall, the results indicate
robustness, especially for the asymmetries between government stability during the tightening and easing cycles. Tables E1 and E2
provide us with some insight into the importance of building an institutional framework that helps to enhance resilience and per-
formance during bad times. The initial cross-country position of government stability explains the cross-country performance and
resilience of countries during the next monetary cycles. These pieces of evidence show that even if building relevant institutions is
difficult and takes time, this may provide long-run benefits and maintain the economy on a sustainable path. Appendix Figs. A1 and A2
present panel quantile evidence that supports the results of Table F1 and F2. Higher government stability provides better resilience to
depreciation for higher quantiles of the depreciation rate. In addition, better government stability allows for better performance on
equity markets for lower quantiles of the MSCI indexes.
15
In Appendix D and E, we provide panel evidence for the 5 cycles in the case of the bilateral exchange rate variations and the MSCI variations
during the cycles.
18
Table 15
Panel evidence for Exchange Market Pressure indexes.
Variables EMP 4 Cycles EMP 4 Cycles

ers − 2.35 − 2.91
(1.75) (1.97)
tight 1.93
(4.95)
c.ers#c.tight − 0.55
(2.63)
RESGDP − 0.02 − 0.04*
(0.01) (0.02)
c.RESGDP#c.tight − 0.02
(0.03)
NIIP 0.42 1.35
(0.59) (0.99)
c.NIIP#c.tight 0.92
(1.15)
Gdeficit 0.07 − 0.03
(0.07) (0.12)
c.GDeficit#c.tight − 0.10
(0.14)
demoacc − 0.51 ¡1.02***
(0.32) (0.37)
c.demoacc#c.tight − 0.50
(0.49)
FM − 2.67 − 2.97
(1.98) (2.52)
c.FM#c.tight − 0.29
(3.20)
govstab − 0.09 − 0.35
(0.24) (0.23)
c.govstab#c.tight − 0.25
(0.34)
FI 3.38 5.62**
(2.81) (2.71)
c.FI#c.tight 2.24
(3.9039)
ethnictens − 0.49 − 0.50
(0.33) (0.33)
c.ethnictens#c.tight − 0.00
(0.46)
Constant 8.20*** 10.13**
(3.07) (3.88)
R-squared 0.26 0.26
RSME 3.0 3.0
removed from the model starting from the highest to the lowest p-value. Bold indicates a significance level
below 5 %. Only the four first cycles are included due to missing data for EMP. The dummies ‘tight’ and
‘easy’ refer to tightening and easing cycles, respectively. Source: authors’ calculations.
5. Conclusion
The share of the U.S. in global output has steadily declined in recent years. The relative decline of the U.S. in the world economy
mirrors the relative decline of advanced economies as a whole and the corresponding rise of emerging markets spearheaded by China.
However, despite the relative decline of the U.S. in the real economy, the U.S. dollar still reigns supreme. The dollar still dominates
international trade and financial transactions, foreign exchange reserves of central banks, and the denomination of oil and other
commodities. Furthermore, the dominance looks set to continue into the foreseeable future in light of the increase in global uncertainty
in the post-COVID-19 world and the enduring safe haven currency status of the dollar. The unchallenged supremacy of the dollar,
combined with the world’s largest and most liquid financial markets, means that swings in the U.S. Federal Reserve’s monetary policy
have an outsized impact on global financial markets. Emerging markets are especially vulnerable to the Fed’s tightening and easing
cycles. However, some emerging markets are more resilient than others. The natural question that arises is, why?
Our empirical analysis of the determinants of emerging-market resilience in response to the Fed’s policy delved into five alternating
tightening and easing cycles between 2004 and 2023. This period is ideal for investigating our research question because it contains big
shocks such as the global financial crisis, the Taper Tantrum, and the COVID-19 pandemic, which induced sharp swings in U.S.
monetary policy. Cross-country regressions explored the link between ex-ante macroeconomic and institutional variables and three
19
Table 16
Panel evidence for MSCI indexes.
Tightening cycles Easings cycles
Variables MSCI 4 Cycles MSCI 4 Cycles

CAB 1.46** 0.77
(0.70) (0.60)
tight − 30.07
(37.91)
(0.92)
FUELM − 0.08 ¡1.60***
(0.66) (0.49)
c.FUELM#c.tight − 1.51*
(0.82)
FI − 27.76 ¡78.47***
(23.66) (22.02)
c.FI#c.tight − 50.70
(32.32)
Gdeficit − 1.81 ¡2.21***
(1.33) (0.77)
c.GDeficit#c.tight − 0.39
(1.54)
govstab − 5.57* 9.27***
(2.91) (2.22)
c.govstab#c.tight 14.84***
(3.66)
corruption 6.10 2.43
(4.97) (3.19)
c.corruption#c.tight − 3.66
(5.91)
ers ¡34.59** − 12.26
(15.03) (12.01)
c.ers#c.tight 22.32
(19.24)
Constant 59.31** 29.23
(27.19) (26.41)
R-squared 0.41 0.41
RMSE 34.78 34.78
removed from the model starting from the highest to the lowest p-value. Bold indicates a significance level
below 5 %. Only the four first cycles are included, as we use the ers variable in the backward stepwise
selection procedure. The dummies ‘tight’ and ‘easy’ refer to tightening and easing cycles, respectively.
Source: authors’ calculations.
measures of resilience, namely bilateral exchange rate against the USD, exchange rate market pressure (EMP) (Goldberg and
Krogstrup, 2023), and country-specific Morgan Stanley Capital International index (MSCI). At a broader level, our analysis confirms
that ex-ante macroeconomic and institutional variables do matter, determinants of resilience differ during U.S. tightening versus
easing, and institutional variables gain greater significance during downturns.
Our evidence sheds new light on the relative role of various macroeconomic and institutional variables in explaining the resilience
of emerging markets in response to the Fed’s tightening and easing cycles. A key result of our paper is the asymmetric importance of
institutional variables, where these variables gain much greater significance during downturns. This result is in line with the paradox
of regulation: Effective regulator effort, while helping avoid a crisis, may be confused as a signal that the environment is less risky,
reducing the posterior probability of the crisis, and eroding the political support for costly regulation. This may test the independence
of central banks, and their ability to withstand this pressure. A recent example of these dynamics is the relaxation of the Dodd-Frank
tightening banks’ supervision due to political pressure in 2018, just 10 years after the GFC explained the Silicon Valley bank and other
banks’ 2023 collapses. This concern remains the enduring challenge of regulatory quality, testing all central banks’ time consistency
and independence, especially at a time of growing fiscal dominance pressures.
Emerging-market policymakers can infer some policy implications from our specific empirical findings. For instance, we find that
international reserves, current account balance, and inflation are all important determinants of performance in response to U.S.
monetary policy swings. This reinforces the conventional wisdom that strong fundamentals protect emerging markets. Our study
contributes to the literature on emerging-market resilience to U.S. monetary policy by analyzing the behavior of three measures of
resilience over a period that witnessed extended cycles of both tightening and easing. Another contribution is our comparative analysis
of emerging-market response to tightening versus easing cycles. Finally, our paper suggests several future research directions. For one,
we can explore the performance of the emerging-market real economy to the tightening and easing cycles of the U.S. Fed. Another idea
20
is to replicate our exercise for the European Central Bank or People’s Bank of China. And yet another idea is to explore why some
emerging-market central banks follow the Fed’s lead more than others. Besides, we expect that the interaction of geopolitical interests
with strong macroeconomic fundamentals will have more influence in recent monetary cycles. Does geopolitical proximity to China
hinder the buffer effect of strong fundamentals during recent monetary cycles? These are just a few examples of related future research.
CRediT authorship contribution statement
Joshua Aizenman: Conceptualization, Formal analysis, Investigation, Methodology, Project administration, Supervision, Visu-
alization, Writing – review & editing. Donghyun Park: Conceptualization, Funding acquisition, Investigation, Project administration,
Supervision, Writing – review & editing. Irfan A. Qureshi: Conceptualization, Data curation, Methodology, Validation, Writing –
original draft. Jamel Saadaoui: Conceptualization, Data curation, Formal analysis, Investigation, Methodology, Validation, Visual-
ization, Writing – original draft, Writing – review & editing. Gazi Salah Uddin: Conceptualization, Data curation, Formal analysis,
Investigation, Methodology, Validation, Visualization, Writing – original draft, Writing – review & editing.
Data availability
Data will be made available on request.
Appendix A. . Data sources and definitions
Variable Definition Source, Identifier
DXRcycle_i Variation in log of UXR during the monetary cycle “i” in Own calculations based on UXR
percent
MSCIcycle_i Variation in log of MSCI index during the monetary cycle Own calculations based MSCI
“i” in percent
EMPcycle_i Variation of EMP index during the monetary cycle “i” Own calculations based on emp_usd
XR XR, USD per Domestic Currency, Period Average IMF, IFS, EDNA_USD_XDC_RATE
UXR 1 USD=UXR Domestic currency, Domestic currency per Computed from XR
USD
EMP Exchange rate Market Pressures − Goldberg-Krogstrup https://www.newyorkfed.org/medialibrary/media/research/economists/
(2023) goldberg/EMP_index_full.csv
MSCI MSCI country indexes https://www.msci.com/index-methodology
CAB Current Account Balance in % of GDP World Bank, WDI, BN.CAB.XOKA.GD.ZS
NIIP net IIP / GDP domestic currency https://www.brookings.edu/articles/the-external-wealth-of-nations-database/
GDeficit Gov. Net Lending/Borrowing in % of GDP IMF, WEO, GGXCNL_NGDP
GDebt General Gov. Gross Debt in % of GDP IMF, WEO, GGXWDG_NGDP
CPI Consumer Price Inflation World Bank, WDI, FP.CPI.TOTL.ZG
FUELX Fuel Export on Total Exports World Bank, WDI, TX.VAL.FUEL.ZS.UN
FUELM Fuel Import on Total Imports World Bank, WDI, TM.VAL.FUEL.ZS.UN
kaopen Chinn-Ito index https://web.pdx.edu/~ito/Chinn-Ito_website.htm
FI Financial Institution index IMF, FDI, FD_FI_IX
FM Financial Market index IMF, FDI, FD_FM_IX
extconf ICRG index − External Conflict https://www.prsgroup.com/
bureau ICRG index − Bureaucracy Quality https://www.prsgroup.com/
corruption ICRG index − Corruption https://www.prsgroup.com/
demoacc ICRG index − Democratic Accountability https://www.prsgroup.com/
ethnictens ICRG index − Ethnic Tensions https://www.prsgroup.com/
govstab ICRG index − Government Stability https://www.prsgroup.com/
intconf ICRG index − Internal Conflict https://www.prsgroup.com/
laworder ICRG index − Law and Order https://www.prsgroup.com/
milpol ICRG index − Law and Order https://www.prsgroup.com/
reltensions ICRG index − Religious Tensions https://www.prsgroup.com/
ers Exchange Rate Stability Index https://web.pdx.edu/~ito/trilemma_indexes.htm
RES Total reserves minus gold (current US$) World Bank, WDI, FI.RES.XGLD.CD
CURGDP GDP (current US$) World Bank, WDI, NY.GDP.MKTP.CD
RESGDP Total reserves minus gold (% of GDP) Own calculations, 100*(RES/CURGDP)
IT Inflation Targeters Own elaboration
Appendix B. . Composition of the samples in the cross-sectional regressions
Largest sample (65 countries) in the bilateral exchange rate regressions in Tables 6 and 7: United Kingdom, Denmark, Norway,
Sweden, Switzerland, Canada, Japan, Iceland, Australia, New Zealand, South Africa, Brazil, Chile, Colombia, Costa Rica, Dominican
Republic, Guatemala, Honduras, Mexico, Nicaragua, Paraguay, Peru, Uruguay, Jamaica, Trinidad and Tobago, Israel, Kuwait, Egypt,
Hong Kong, India, Indonesia, South Korea, Malaysia, Pakistan, Philippines, Singapore, Thailand, Botswana, Cameroon, Ghana, Kenya,
Madagascar, Morocco, Mozambique, Nigeria, Namibia, Tanzania, Tunisia, Uganda, Zambia, Armenia, Belarus, Albania, Kazakhstan,
21
Bulgaria, Moldova, Russia, China, Ukraine, Czech Republic, Hungary, Mongolia, Croatia, Poland, Romania.
Largest sample (37 countries) in the EMP regressions in Tables 8 and 9: United Kingdom, Denmark, Norway, Sweden, Switzerland,
Canada, Japan, Australia, New Zealand, South Africa, Bolivia, Brazil, Chile, Colombia, Mexico, Peru, Uruguay, Israel, Jordan, Hong
Kong, India, South Korea, Malaysia, Singapore, Thailand, Botswana, Morocco, Tunisia, Armenia, Russia, China, Ukraine, Czech Re-
public, Hungary, Croatia, Poland, Romania.
Largest sample (45 countries) in the MSCI regressions in Tables 10 and 11: United Kingdom, Austria, Belgium, Denmark, France,
Germany, Italy, Netherlands, Norway, Sweden, Switzerland, Canada, Japan, Finland, Ireland, Portugal, Spain, Turkey, Australia, New
Zealand, South Africa, Brazil, Chile, Colombia, Mexico, Peru, Israel, Jordan, Kuwait, Egypt, Sri Lanka, Hong Kong, India, Indonesia,
South Korea, Malaysia, Pakistan, Philippines, Singapore, Thailand, Morocco, China, Czech Republic, Hungary, Poland.
Appendix C. . Inspecting the GFC cycle
Table C1. Cross-sectional regressions for the bilateral exchange rate variation.
Full set Backward Stepwise Full set Backward Stepwise
Variables DXR Before ZLB DXR Before ZLB DXR After ZLB DXR After ZLB
CAB − 0.2018 − 0.1729 − 0.3161* ¡0.3157**
(0.2209) (0.1089) (0.1712) (0.1264)
RESGDP − 0.1149 − 0.2607* − 0.1687*
(0.1798) (0.1441) (0.0889)
NIIP − 0.5869 5.5470
(4.1981) (4.5099)
GDeficit 0.2990 0.3412 0.3486
(0.4098) (0.3230) (0.2604)
GDebt − 0.1316 − 0.1334* 0.0592
(0.0983) (0.0675) (0.0473)
CPI 0.8421 1.0568* 0.6554
(0.8010) (0.5892) (0.7611)
FUELX − 0.0445 − 0.0970 ¡0.1216**
(0.1005) (0.0642) (0.0583)
FUELM 0.1848 0.2777 0.3429**
(0.2418) (0.1978) (0.1529)
kaopen − 2.2140 − 1.7276 0.7859
(2.0150) (1.2715) (1.6189)
ers 8.9904 − 2.8290
(10.1540) (7.6743)
IT 10.2767 10.3655*** − 4.6410 − 6.7459*
(6.1332) (3.0556) (4.9016) (3.8975)
FI − 8.4903 ¡42.9457*** ¡41.0517***
(18.7617) (14.4616) (9.8373)
FM 17.7833 10.8263 12.3409 14.8609*
(14.8970) (8.1248) (8.5950) (7.5072)
extconf − 0.3840 − 0.4802
(2.0098) (1.4707)
corruption 3.1023 2.5362 − 2.3459
(3.4553) (1.7798) (2.4467)
demoacc 0.1869 1.9031
(2.0065) (1.4830)
ethnictens − 0.2255 − 1.8964 − 2.0897*
(1.7527) (1.6236) (1.1581)
govstab 0.1656 3.4028** 2.4545**
(1.7694) (1.5430) (1.1689)
intconf 1.2133 0.8124
(1.6716) (1.5668)
laworder − 2.1795 1.3667
(2.8575) (2.1119)
milpol 1.7687 2.7778 3.5967***
(2.2000) (1.8984) (1.2652)
reltensions − 0.7238 − 0.1113
(1.8027) (1.3560)
Constant − 11.4217 − 3.6670 − 19.3509 − 2.8635
(29.3220) (7.3894) (21.0067) (10.4352)
R-squared 0.3761 0.3141 0.5225 0.4578
RMSE 13.81 12.57 11.54 10.95
Note: *** p < 0.01, ** p < 0.05, * p < 0.1. Robust standard errors are in parentheses. Data for the index of exchange rate stability (ers)
are not available for the fifth cycle. Bold indicates a significance level below 5 %. Source: authors’ calculations.
22
Table C2. Cross-sectional regressions for the MSCI indexes.
Full set Backward Stepwise Full set Backward Stepwise
Variables MSCI Before ZLB MSCI Before ZLB MSCI After ZLB MSCI After ZLB
CAB 0.2975 − 0.1650
(1.2263) (1.2726)
RESGDP 0.6070 0.6998** − 0.7571* − 0.6735**
(0.4461) (0.3007) (0.4248) (0.2746)
NIIP − 6.5979 18.6028 24.8733***
(12.3415) (14.1329) (6.8238)
GDeficit − 1.2325 − 1.2223 1.1092
(1.7116) (0.7880) (1.5445)
GDebt − 0.5030* ¡0.3951** 0.0671
(0.2524) (0.1456) (0.2199)
CPI − 5.7036* − 3.7747 5.0363* 3.4723***
(2.9178) (2.5220) (2.8051) (1.0537)
FUELX 0.6397 0.7033** − 0.5944
(0.4403) (0.3327) (0.4363)
FUELM 1.3958 1.2398 − 0.9447
(1.0010) (0.8232) (0.7558)
kaopen 7.3083 − 7.7525 − 5.5828
(7.2521) (6.8885) (3.5123)
ers − 28.8429 − 54.0297 − 26.9781*
(51.0516) (48.1141) (13.6712)
IT − 6.9706 − 14.0438
(26.0377) (27.7160)
FI 11.3660 43.7330 56.7816**
(51.0951) (48.6382) (26.9805)
FM − 16.2893 10.9947
(37.8275) (43.3004)
extconf 1.1760 3.6167 6.2049
(9.6178) (5.9654) (3.9096)
corruption − 3.0406 7.2564
(12.5653) (8.2939)
demoacc 11.5671 11.3193** − 8.0741
(7.6012) (4.5223) (6.4664)
ethnictens − 2.7126 3.0321
(6.0226) (4.7789)
govstab 6.4822 − 4.9401
(5.0846) (5.1920)
intconf − 4.1643 − 6.0738 − 7.5185**
(6.8656) (6.3542) (3.5257)
laworder − 2.4236 − 5.6053 − 3.3801
(11.2953) (4.0360) (8.3769)
milpol − 13.0735 ¡12.5077** 4.8960
(8.8496) (5.2282) (7.7274)
reltensions 5.7128 6.9698** − 6.4450
(5.6249) (3.0397) (5.4810)
Constant − 55.3818 ¡68.6568** 135.6823 17.0445
(87.6277) (33.2385) (107.7307) (41.4191)
R-squared 0.5208 0.4508 0.5500 0.4310
RMSE 30.02 25.64 27.34 23.82
Note: *** p < 0.01, ** p < 0.05, * p < 0.1. Robust standard errors are in parentheses. Bold indicates a significance level below 5 %.
Source: authors’ calculations.
23
Appendix D. . Panel evidence for the bilateral exchange during the five cycles
Tightenings Easings
Variables DXR 5 cycles DXR 5 cycles

CAB ¡0.3295** − 0.1635
(0.1487) (0.1730)
tight 34.4543***
(10.9600)
c.CAB#c.tight 0.1660
(0.2281)
kaopen − 1.4127 − 1.3631
(1.0396) (0.9381)
c.kaopen#c.tight 0.0496
(1.4003)
NIIP − 1.6504 3.0376*
(1.6754) (1.5742)
c.NIIP#c.tight 4.6880**
(2.2990)
FUELM 0.2130 0.4813***
(0.1680) (0.1491)
c.FUELM#c.tight 0.2683
(0.2247)
GDebt − 0.0663 − 0.0132
(0.0489) (0.0308)
c.GDebt#c.tight 0.0531
(0.0578)
govstab 2.1891* ¡3.2524***
(1.1528) (0.7211)
(1.3598)
Constant − 7.9835 26.4708***
(9.0356) (6.2031)
Countries (max) 84 84
R-squared 0.1640 0.1640
RMSE 15.88 15.88
Note: *** p < 0.01, ** p < 0.05, * p < 0.1. Robust standard errors are in parentheses. We use a backward stepwise selection procedure
for the variables. The variables with p-values above 20 % are sequentially removed from the model starting from the highest to the
lowest p-value. Bold indicates a significance level below 5 %. The dummies ‘tight’ and ‘easy’ refer to tightening and easing cycles,
Appendix E. . Panel evidence for the MSCI indexes during the five cycles
Variables MSCI 5 cycles MSCI 5 cycles

CAB 1.1104 0.1714
(0.7343) (0.6082)
tight − 48.8189
(38.7173)
(0.9535)
RESGDP 0.1020 ¡0.2857**
(0.1705) (0.1144)
c.RESGDP#c.tight − 0.3877*
(0.2053)
FI − 48.0720 ¡76.9205***
(32.1093) (27.0512)
c.FI#c.tight − 28.8485
(41.9854)
GDeficit − 1.6081 0.3710
(1.1956) (0.8234)
c.GDeficit#c.tight 1.9790
(1.4517)
(continued on next page)
24
(continued )
FM 62.1074* 24.2695
(33.1691) (23.2395)
c.FM#c.tight − 37.8379
(40.5002)
IT 14.7739* 7.6210
(8.8401) (6.8778)
c.IT#c.tight − 7.1529
(11.2005)
FUELX − 0.0486 − 0.2907
(0.1905) (0.2468)
c.FUELX#c.tight − 0.2421
(0.3118)
FUELM − 0.1543 − 0.7861*
(0.6673) (0.4486)
c.FUELM#c.tight − 0.6318
(0.8040)
govstab ¡6.4414** 11.1605***
(3.0182) (2.3375)
(3.8175)
Constant 39.7995 − 9.0194
(27.9186) (26.8250)
R-squared 0.2897 0.2897
RMSE 36.41 36.41
Appendix F. . Robustness checks
Table F1. Panel evidence for the bilateral exchange during the five cycles.
Pooled Pooled tightenings Pooled easing Interaction tightenings Heterogenous
Variables DXR 5 cycles DXR 5 cycles DXR 5 cycles DXR 5 cycles DXR 5 cycles
CAB − 0.2070* − 0.1635 ¡0.3295** ¡0.3295** ¡0.3295**
(0.1173) (0.1724) (0.1493) (0.1487) (0.1492)
tight 34.4543*** 10.1814
(10.9600) (11.1203)
c.CAB#c.tight 0.1660 0.2323
(0.2281) (0.1974)
kaopen ¡1.5105** − 1.3631 − 1.4127 − 1.4127 − 1.4127
(0.7040) (0.9352) (1.0441) (1.0396) (1.0432)
c.kaopen#c.tight 0.0496 − 0.1175
(1.4003) (1.2684)
NIIP 1.7823* 3.0376* − 1.6504 − 1.6504 − 1.6504
(1.0167) (1.5693) (1.6826) (1.6754) (1.6813)
c.NIIP#c.tight 4.6880** 2.9088
(2.2990) (2.0643)
FUELM 0.4309*** 0.4813*** 0.2130 0.2130 0.2130
(0.1120) (0.1487) (0.1687) (0.1680) (0.1686)
c.FUELM#c.tight 0.2683 − 0.2120
(0.2247) (0.2071)
GDebt − 0.0408 − 0.0132 − 0.0663 − 0.0663 − 0.0663
(0.0288) (0.0307) (0.0491) (0.0489) (0.0490)
c.GDebt#c.tight 0.0531 0.0729
(0.0578) (0.0597)
govstab ¡1.3326** ¡3.2524*** 2.1891* 2.1891* 2.1891*
(0.6678) (0.7189) (1.1577) (1.1528) (1.1568)
25
(continued )
1.time#c.govstab#c.tight ¡3.3217**
(1.3420)
3.time#c.govstab#c.tight 0.5115
(1.4324)
5.time#c.govstab#c.tight − 1.2937
(1.4593)
(1.3598)
Constant 14.5127*** 26.4708*** − 7.9835 − 7.9835 − 7.9835
(5.2905) (6.1835) (9.0746) (9.0356) (9.0672)
Observations 301 173 128 301 301
R-squared 0.0951 0.1702 0.1444 0.1640 0.3726
RMSE 16.33 16.57 14.89 15.88 13.81
Table F2. Panel evidence for the MSCI indexes during the five cycles.
Variables MSCI 5 cycles MSCI 5 cycles MSCI 5 cycles MSCI 5 cycles MSCI 5 cycles
CAB 0.9921* 0.1714 1.1104 1.1104 1.1104
(0.5955) (0.6036) (0.7426) (0.7343) (0.7380)
tight − 48.8189 14.4724
(38.7173) (34.0218)
c.CAB#c.tight − 0.9390 − 0.6605
(0.9535) (0.8613)
RESGDP ¡0.2220** ¡0.2857** 0.1020 0.1020 0.1020
(0.1057) (0.1135) (0.1724) (0.1705) (0.1713)
c.RESGDP#c.tight − 0.3877* − 0.1437
(0.2053) (0.1882)
FI ¡64.4896*** ¡76.9205*** − 48.0720 − 48.0720 − 48.0720
(23.1149) (26.8455) (32.4722) (32.1093) (32.2711)
c.FI#c.tight − 28.8485 − 19.2923
(41.9854) (39.3283)
GDeficit − 1.3532* 0.3710 − 1.6081 − 1.6081 − 1.6081
(0.7629) (0.8172) (1.2091) (1.1956) (1.2016)
c.GDeficit#c.tight 1.9790 0.4655
(1.4517) (1.3728)
FM 34.0355 24.2695 62.1074* 62.1074* 62.1074*
(21.5714) (23.0628) (33.5439) (33.1691) (33.3361)
c.FM#c.tight − 37.8379 − 24.1073
(40.5002) (38.3384)
IT 14.3814** 7.6210 14.7739 14.7739* 14.7739*
(5.9038) (6.8255) (8.9400) (8.8401) (8.8846)
c.IT#c.tight − 7.1529 − 5.7592
(11.2005) (10.1759)
FUELX − 0.2347 − 0.2907 − 0.0486 − 0.0486 − 0.0486
(0.1726) (0.2449) (0.1927) (0.1905) (0.1915)
c.FUELX#c.tight − 0.2421 0.0529
(0.3118) (0.2711)
FUELM ¡0.8027** − 0.7861* − 0.1543 − 0.1543 − 0.1543
(0.3882) (0.4452) (0.6748) (0.6673) (0.6706)
c.FUELM#c.tight − 0.6318 − 0.2385
(0.8040) (0.7634)
govstab 5.3239** 11.1605*** ¡6.4414** ¡6.4414** ¡6.4414**
(2.0846) (2.3197) (3.0523) (3.0182) (3.0334)
1.time#c.govstab#c.tight 10.0534***
(3.5667)
26
(continued )
(3.8489)
(3.7916)
(3.8175)
Constant 3.6636 − 9.0194 39.7995 39.7995 39.7995
(20.2270) (26.6210) (28.2341) (27.9186) (28.0593)
Observations 220 130 90 220 220
R-squared 0.1365 0.3152 0.1377 0.2897 0.4863
RMSE 39.18 35.05 38.36 36.41 31.12
Fig. A1. Panel quantile evidence for the bilateral exchange rate during the five cycles. Note: the dotted lines correspond to the OLS
estimation for each coefficient. The blue line and the shaded area indicates the percentile estimates. We use the model in column 5 of
Table E1. The variables with the ‘_tight’ term indicates interaction tems with the tightening cycles dummy and the corresponding ex-
ante macroeconomic variable. Source: authors’ calculations.
27
Fig. A2. Panel quantile evidence for the MSCI indexes during the five cycles. Note: the dotted lines correspond to the OLS estimation
for each coefficient. The blue line and the shaded area indicates the percentile estimates. We use the model in column 5 of Table F1.
The variables with the ‘_tight’ term indicates interaction tems with the tightening cycles dummy and the corresponding ex-ante
macroeconomic variable. Source: authors’ calculations.
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Journal of International Money and Finance 148 (2024) 103169

Contents lists available at ScienceDirect

Journal of International Money and Finance

The performance of emerging markets during the Fed’s easing and

Available online 16 August 2024

3. HYPERLINK “SPS:id::Sec2” Methodology and data

Variables DXRcycle_1 DXRcycle_2 DXRcycle_3 DXRcycle_4 DXRcycle_5

4.1. Baseline regressions

Variables DXRcycle_1 DXRcycle_2 DXRcycle_3 DXRcycle_4 DXRcycle_5

Variables EMPcycle_1 EMPcycle_2 EMPcycle_3 EMPcycle_4

Variables EMPcycle_1 EMPcycle_2 EMPcycle_3 EMPcycle_4

Variables MSCIcycle_1 MSCIcycle_2 MSCIcycle_3 MSCIcycle_4 MSCIcycle_5

Variables MSCIcycle_1 MSCIcycle_2 MSCIcycle_3 MSCIcycle_4 MSCIcycle_5

exchange rate pressures in three cycles out of five.11

other countries during the “Taper Tantrum” cycle.

4.2. Panel data regressions

Variables DXR 4 Cycles DXR 4 Cycles

4.3. Robustness checks

Variables EMP 4 Cycles EMP 4 Cycles

Variables MSCI 4 Cycles MSCI 4 Cycles

CRediT authorship contribution statement

Data will be made available on request.

Appendix A. . Data sources and definitions

Variable Definition Source, Identifier

Appendix B. . Composition of the samples in the cross-sectional regressions

Appendix C. . Inspecting the GFC cycle

Full set Backward Stepwise Full set Backward Stepwise

Table C2. Cross-sectional regressions for the MSCI indexes.

Full set Backward Stepwise Full set Backward Stepwise

Variables DXR 5 cycles DXR 5 cycles

Tightening cycles Easing cycles

Variables MSCI 5 cycles MSCI 5 cycles

Appendix F. . Robustness checks

Pooled Pooled tightenings Pooled easing Interaction tightenings Heterogenous

Pooled Pooled tightenings Pooled easing Interaction tightenings Heterogenous

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