Macroeconomic Policy Analysis and Financial Markets
The recent economic and financial crisis had a devastating effect on economic growth, employment, and public deficits, resulting in a significant drop in the standard of living of most industrialized countries. These effects were especially negative for some countries of the European Monetary Union, especially for those with a sovereign debt crisis and serious economic problems of growth and unemployment in a background of rising public deficits and debt.
In this situation, it seems natural to study the effects that different economic policies might have to encourage economic growth and employment using a modern macroeconomic analysis considering both rigidities in the labor market (especially in the Spanish economy) and large public deficits.
Regarding financial markets we are doing research on identification and prediction of systemic shocks. We analyze the macroeconomic determinants of financial risks and their cross-sectional implications.
The subjects researched in our ongoing projects include:
(1) Macroeconomic Policy
- Macroeconomic policies to encourage growth and production
- Macroeconomic effect that fiscal and monetary policies have on employment.
- Dynamic Stochastic General Equilibrium with endogenous growth. We aim to improve endogenous growth models with the accumulation of human capital, with frictions in the work market and Taylor rules that explain the Monetary Authority’s behavior.
(2) Financial Markets and Systemic Risk.
- We are doing research to improve the procedures for the identification of systemic shocks and the methods for the estimation and assessment of the consequences of those shocks on the financial sector and the real economy as a whole.
- Techniques for quantifying the credit risk of banks. Estimate the idiosyncratic shocks in the default risk by using the CDS market and to characterize the main attributes of those shocks that spread to the rest of the system
- Estimate and measure the transmission of market risk between pairs of banks using the CoVaR; we study the sensitivity of the results to the method used for calculating the VaR of each bank.
- Macroeconomic determinants of the betas of financial assets, their cross-sectional consequences on the expected returns from these and analyze their relationship with the capital structure of industrial and financial companies.
- Identify common credit risk factors in the financial system from the individual risks, in order to build an indicator of systemic risk. Subsequently, we will study the determinant factors of this indicator and its relationship with different variables measuring economic and financial activity.