Egyptian exchange market © picture alliance / AP Photo | Amr Nabil

Macroeconomic Stability and Financial Integration

Macroeconomic stability is a necessary condition for stable economic development and depends strongly on financial integration into regional and global markets.

Emerging and developing countries often have thin domestic financial markets, low quality of institutions, and differ in their economic structure from more advanced economies. To manage their exposure to domestic and global economic shocks, less developed economies therefore require a different mix of policies with respect to monetary independence, exchange rate stability, financial openness, and fiscal stability.

Due to the exposure to external sources of volatility (e.g. liquidity spillovers from developed markets, fluctuation of resource prices, or unstable financial flows) successfully managing the exchange rate through central bank interventions while preserving monetary stability is often a policy priority. Credibly regulating external financial flows and ensuring effective macroprudential policies are other key concerns. We study these policies’ effectiveness and their impacts on both macroeconomic variables as well as on market expectations and sentiment.

The choice of macroeconomic policies in these settings cannot be fully understood without recognizing constraints imposed by the political economy and institutional aspects. We therefore also study the role of political business cycles and partisan ideologies in the context of the institutional background in emerging and developing countries.

Selected external project partners

Lukas Menkhoff (Humboldt Universität  Berlin / DIW), Lucio Sarno (University of Cambridge), Maik Schmeling (Goethe Universität Frankfurt)

  1. Policy Article

    Thoughts on Inclusive Economic Integration

    In: Charap, S./Demus, A./Shapiro, J.: Getting Out from "In-Between": Perspectives on the Regional Order in Post-Soviet Europe and Eurasia, Washington, DC: RAND Corporation
    Esther Ademmer, Yaroslav Lissovolik

    Esther Ademmer and Yaroslav Lissovolik examine the challenges for inclusive economic integration in post-Soviet Europe and Eurasia. They note...

  2. Policy Article

    Migration, Poverty and Equality

    PEGNet Policy Briefs
    Lykke Eg Andersen

    The scale of inequality around the world is almost unfathomable. The average inhabitant of Norway, Qatar and Switzerland earns more in one day...