if there is no change, and -1 if the regulations are relaxed.<sup>19</sup> Finally, we include cyclical components of the nominal exchange rate, real effective exchange rate, and foreign exchange reserves, each calculated by applying an HP-filter to the log values of the respective series.<sup>20</sup> We estimate the regressions by Least Square Estimates, and include country fixed effects. Though not reported here, results are robust to the inclusion of time fixed effects or a linear time trend. The results are also robust when the policy variables such as CFMs, macroprudential measures and policy rates take specific numerical values rather than taking index values of 1, 0 and - 1; and when we estimate the regressions by limited dependent variable regressions rather than linear regressions.

Our first set of results is in Tables 7 and 8, which indicate that CFMs are not used procyclically or countercyclically in response to a domestic business cycle or credit cycle. Coefficients of CFMs on all four types of flows are insignificant, suggesting that the use of CFMs is acyclical. This result is consistent with Eichengreen and Rose (2014), and Fernandez et al. (2015) who similarly do not find evidence of a countercyclical use of CFMs. In contrast to CFMs, there is strong evidence of countercyclical use of monetary policy--policy rates are lowered when the the output or credit gap is negative, and raised when it is positive. Macroprudential measures are also used countercyclically with respect to business cycle fluctuations - they are strengthened when the output gap is positive, and relaxed when it is negative; but are acyclical to the credit cycle. Besides monetary policy and macroprudential measures, exchange rates play a significant adjustment role--a positive output gap is associated with an appreciation of both nominal and real exchange rates and vice versa. Evidently, while letting their exchange rates adjust, countries also modulate large impacts of business cycles on their exchange rate. This is reflected in a positive association between changes in reserves and the output gap—indicative of countries’ attempt to temper the exchange rate appreciation (depreciation) when the output gap is positive (negative) by accumulating (using) reserves. The nominal exchange rate adjusts in a countercyclical fashion to credit cycles as well.<sup>21</sup> 19 Policy rates data are from Haver and IFS. We consider quarter-over-quarter changes in policy rates. We include change in monetary policy in two ways. We define an index that takes a value 1 when the policy rate is increased, 0 when it does not change; and -1 when it is lowered. Alternatively, we include all changes in policy rates in the regressions. The result holds when we replace the interest rate index by changes in the level of interest rates.

> 20 Data on nominal exchange rate series (vis-à-vis US dollar) and reserves are from the IFS database of the IMF. The data on real effective exchange rate (weighted real exchange rate with respect to a basket of currencies) are from the IFS database, supplemented by data from JP Morgan. An increase in the nominal exchange rate is an exchange rate depreciation; while an increase in the real effective exchange rate is an appreciation of the exchange rate. Data for different variables are available for varying number of countries. While the data on CFMs and reserves are available for all 47 countries in the sample, quarterly GDP data are available for 42 countries, nominal exchange rates for 41, policy rates for 35, and the real effective exchange rates and macroprudential measures are available for 31 and 28 countries respectively. Results are robust if we confine the analysis to the smallest sample of 28 countries across all policy variables.

21 As an extension, we test whether the results are symmetric for positive and negative output gaps, and we find that the results are symmetric.

18