Institutos Universitarios

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.
  • Nonfinancial debt accumulation and economic growth in the euro-area countries 
  • Seeking price and macroeconomic stabilization in the euro area 
  • Fragmentation and monetary policy transmission in the euro area
  • Blanket guarantee or targeted interventions during financial crisis

(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 on default risk by using CDS market data and characterize themain attributes of those shocks that spread to the rest of the system
  • Use conditional risk measures like CoVaR to estimate and measure the transmission of market risk between banks. Analyze the sensitivity of the results to the approach followed for calculation of Value at Risk in each bank.
  • Macroeconomic determinants of stock market betas, evaluate their cross-sectional effects on expected returns and their relationship with the capital structure of industrial and financial companies.
  • Identify common credit risk factors in the financial system from individual risks, in order to build an indicator of systemic risk. Study the determinants of such indicator and its relationship with different variables measuring economic and financial activity. 
  • Measuring and monitoring sovereign and banking sector credit risk in the peripheral euro area countries 
  • Analysis of the interconnectedness and contagion between the sovereign and banking sector credit risk in the peripheral euro area countries 
  • Systemic banks, capital composition, and CoCo bonds issuance

(3) Macroeconomic Forecasting

  • Formulation of econometric models to capture the relationship between monthly indicators and macroeconomic aggregates, on the basis of which forecasts are formulated for the activity and demand aggregate components of GDP and Gross Value Added.
  • Preparation of the macroeconomic framework including short-run forecasts of the economy under study, ensuring consistency between the different dimensions of demand, income and production.
  • Use of the macroeconomic framework as a tool for the evaluation of economic policies and the effects of different supply and demand shocks.