CORDIS
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CORDIS

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Liquidity and Risk in Macroeconomic Models

Project information

Grant agreement ID: 269573

Status

Closed project

  • Start date

    1 August 2011

  • End date

    31 July 2016

Funded under:

FP7-IDEAS-ERC

  • Overall budget:

    € 2 070 570

  • EU contribution

    € 2 070 570

Hosted by:

UNIVERSITE DE LAUSANNE

Switzerland

Objective

The proposal is motivated by the need to incorporate financial realities into macroeconomic models. The objective is to introduce leverage and liquidity in standard dynamic general equilibrium models and analyze their macroeconomic implications. The proposal is divided into two sub-projects and analyzes two different aspects of liquidity. The first deals with leverage and market liquidity in developed financial economies. The second examines the demand for liquid assets by emerging countries and its global implications. In the first sub-project, the proposal breaks new ground in the understanding of the dynamics of risk and in explaining some important features of the recent crisis. The project particularly emphasizes the role of self-fulfilling changes in expectations that can lead to sudden large shifts in risk. This can take the form of a financial panic with a big drop in asset prices. Various extensions will investigate the empirical implications as well as the implications for international capital flows, exchange rates, macroeconomic activity and policy recommendations. In the second sub-project, the objective is to formalize and analyze different degrees of liquidity in international capital flows. The project will innovate in finding ways to model liquidity in dynamic open economy models. This will allow a better understanding of the recent pattern in international capital flows, where less developed countries lend to richer economies. It will also shed light on the evolution of global imbalances before and after the crisis.

Principal Investigator

Philippe Jean Louis Bacchetta (Prof.)

Host institution

UNIVERSITE DE LAUSANNE

Address

Quartier Unil-Centre BÂTiment Unicentre
1015 Lausanne

Switzerland

Activity type

Higher or Secondary Education Establishments

EU Contribution

€ 2 070 570

Principal Investigator

Philippe Jean Louis Bacchetta (Prof.)

Administrative Contact

Michele Jaccoud Ramseier (Ms.)

Beneficiaries (1)

UNIVERSITE DE LAUSANNE

Switzerland

EU Contribution

€ 2 070 570

Project information

Grant agreement ID: 269573

Status

Closed project

  • Start date

    1 August 2011

  • End date

    31 July 2016

Funded under:

FP7-IDEAS-ERC

  • Overall budget:

    € 2 070 570

  • EU contribution

    € 2 070 570

Hosted by:

UNIVERSITE DE LAUSANNE

Switzerland