The Cross-Country Resilience of Central, Eastern, and Southeastern European Countries during ECB Monetary Cycles

Abstract We investigate the cross-country resilience of Central, Eastern, and Southeastern European Countries (henceforth CESEE countries) during ECB monetary cycles after the accession of ten countries to the EU in 2004. Our investigation examines how economic fundamentals and institutional variables influence cross-country resilience regarding exchange rates, interest rates, stock prices, inflation, and growth during the subsequent monetary cycles. Cross-sectional regressions reveal that limiting inflation, active management of precautionary buffers of international reserves, lower current account deficit, better financial development, and institution quality are important predictors of resilience in the next cycle. The panel regressions show that the US shadow rate strongly influences resilience during the ECB monetary cycles. Besides, various asymmetries are discovered for current account balances, international reserves, and fuel import shares during tightening cycles. Panel quantile regressions detect asymmetries along the distribution of the dependent variables for financial development, central bank independence, and the inflation rate preceding the cycles.