Community Research and Development Information Service - CORDIS

FP7

MACROBANK Result In Brief

Project reference: 334512
Funded under: FP7-PEOPLE
Country: Germany

Novel models to mitigate systemic risk

Monetary and fiscal policy measures proved inadequate to tackle the financial crisis that threatened the collapse of large financial institutions around the world and led to European contagion. An EU initiative aims to introduce innovative macroeconomic models to successfully respond to such crises.
Novel models to mitigate systemic risk
To minimise systemic risk in the financial system, European policymakers have implemented several measures, including liquidity provisions, quantitative easing and nationalisations. However, they are largely unproven and their effectiveness is unknown. There is a need for a theoretical foundation that will identify causes for banking crises and measure the effectiveness of potential crisis intervention policies.

With this in mind, the EU-funded MACROBANK (Systemic risks and macroprudential regulation in banking) project is developing novel macroeconomic models for the competitive banking sector. The foreseen dynamic models seek to examine the usefulness of new crises intervention measures and simulate policy strategies. They will also enhance overall understanding of crisis intervention and its impact on the economy.

To achieve its aims, the project is creating a theoretical foundation and toolbox for policymakers. The project team is developing all required software tools for computer simulations that will then be used to analyse and test the effectiveness of crisis intervention policies. The models will mainly focus on reducing public debt, controlling inflation and deflation, and restoring central bank activities to pre-crisis levels.

Ongoing work in MACROBANK is helping to establish a macroeconomic framework that allows for a complete outlook on banking systems that has been sorely missing to this day. This will lay the foundation of a theoretical basis for modern crisis intervention policies.

Related information

Subjects

Life Sciences

Keywords

Systemic risk, financial crisis, macroeconomic, banking, crisis intervention, macroprudential regulation
Record Number: 175040 / Last updated on: 2016-01-28
Domain: Industrial Technologies