Register for the event

As part of the Vilfredo Pareto Research Seminar series, the International Economics Department at the Graduate Institute is pleased to invite you to a public talk given by Christian Friedrich, Principal Researcher at the Bank of Canada.

He will present his paper Monetary Policy Independence and the Strength of the Global Financial Cycle, coauthored with Pierre Guérin and Danilo Leiva-Léon.

Abstract: We propose a new strength measure of the global financial cycle by estimating a regime-switching factor model on cross-border equity flows for 61 countries. We then assess how the strength of the global financial cycle affects monetary policy independence, defined as the response of central banks' policy interest rates to exogenous changes in inflation. We show that central banks tighten their policy rates in response to an unanticipated increase in the inflation gap during times when global financial cycle strength is low. During times of high financial cycle strength, however, the responses of the same central banks to the same unanticipated changes in the inflation gap appear muted. Finally, by assessing the impact of different policy tools on countries' sensitivities to the global financial cycle, we show that using capital controls, macroprudential policies, and the presence of a flexible exchange rate regime can increase monetary policy independence.

Before the Bank of Canada, Christian Friedrich worked at the European Central Bank and the European Bank for Reconstruction and Development. He holds a PhD in International Economics from the Graduate Institute Geneva. His areas of expertise are international finance and banking, open economy macroeconomics and monetary economics.