The objective of this module is to integrate macroeconomic models with financial modelling and to respond to challenges to macroeconomics thrown up by the 2007 financial crisis. The main methodological innovation is the use of granular network analysis which departs from the highly aggregated traditional macroeconomic approach with low data resolution.
Part I of the module will start with a critical examination of the factors that led to the 2007 Global Financial Crisis and on the role of macro-prudential policy being proposed in the welter of reforms such as the Dodd-Frank and Basel III.
Part II of the course will cover multi agent based sectoral flow of funds models that will be combined with financial network models. This will provide an integrated modelling tool for systemic risk monitoring. Systemic risk from financial leverage and financial contagion is modelled as a negative externalities problem and hence the need for digital mapping of the banking and financial system with holistic visualization tools provided by network models is addressed. Stress testing simulation platforms are designed not just from the perspective of regulatees but also for robust policy that can avoid perverse incentives and fallacies of composition. The Eurozone crisis will be dealt with in detail.
Part III will develop the global granular macroeconomic model which is used to analyse within country imbalances and cross border imbalances. Globalization, offshoring and the growth of the financial sector relative to that of other sectors in OECD countries is given as an explanation for the low GDP growth and extreme GDP volatility.
Part IV of the course covers the pros and cons of non-standard monetary policy such as Quantitative Easing.
At the completion of the course, the student will have acquired cutting edge tools to address the challenges posed to macroeconomics and financial markets. The student will be able to contrast multi-agent granular network based macro-modelling tools with more standard ones. The advanced skill sets acquired from this module will equip the student to contribute to regulatory and policy design issues thrown up in the wake of the 2007 financial crisis.
Part I of the module will start with a critical examination of the factors that led to the 2007 Global Financial Crisis and on the role of macro-prudential policy being proposed in the welter of reforms such as the Dodd-Frank and Basel III.
Part II of the course will cover multi agent based sectoral flow of funds models that will be combined with financial network models. This will provide an integrated modelling tool for systemic risk monitoring. Systemic risk from financial leverage and financial contagion is modelled as a negative externalities problem and hence the need for digital mapping of the banking and financial system with holistic visualization tools provided by network models is addressed. Stress testing simulation platforms are designed not just from the perspective of regulatees but also for robust policy that can avoid perverse incentives and fallacies of composition. The Eurozone crisis will be dealt with in detail.
Part III will develop the global granular macroeconomic model which is used to analyse within country imbalances and cross border imbalances. Globalization, offshoring and the growth of the financial sector relative to that of other sectors in OECD countries is given as an explanation for the low GDP growth and extreme GDP volatility.
Part IV of the course covers the pros and cons of non-standard monetary policy such as Quantitative Easing.
At the completion of the course, the student will have acquired cutting edge tools to address the challenges posed to macroeconomics and financial markets. The student will be able to contrast multi-agent granular network based macro-modelling tools with more standard ones. The advanced skill sets acquired from this module will equip the student to contribute to regulatory and policy design issues thrown up in the wake of the 2007 financial crisis.
- Module Supervisor: Sheri Markose