ERC FUNDED PROJECTS

The modern financial system has undergone immense transformation in recent years and is far more complex than ever before. In lockstep, financial regulation has also become more complex. This research proposal attempts to improve our understanding of potential drivers of this complexity and the implications of this change on the allocation of resources. Taking a positive rather than a normative approach, I will analyse post-crisis changes at both the micro- and at the macro-levels to create a broader understanding of complexities in the current financial system. In order to do so, I will employ a set of advanced research designs, as well as a uniquely assembled micro-level dataset covering state and privately owned financial institutions in Asia, Africa, South America and Europe. This project will focus on two interconnected areas of research: 1) Organisation of Credit, 2) Financial regulation in a complex environment. The aim of this project is to create a sustainable framework for the study of post-crisis financial systems, and to shape the current debate on the future of post-crisis financial structures and the development of policy in this area. Not only will this research have a considerable impact on our understanding of financial systems, it will also impact fields beyond finance, like Organisational Economics, Industrial Organisation and Development Economics.

1 498 947 €

Start date: 2016-04-01, End date: 2021-03-31

From pension reforms to UI extensions, the optimal tax and program design literature is often ill-equipped to provide clear guidance in policy debates on the reform of social insurance and tax-and-benefit systems. The reason is that this literature is mostly focused on static settings, while these programs are inherently dynamic: they specify a schedule of tax and benefits that is time or state dependent and they affect individuals’ decisions throughout their lifetime. DYNAMICSS will offer a simple and general approach to the analysis of optimal dynamic policies that connects to the data. The key idea of DYNAMICSS is to extend the sufficient statistics (SS) approach to dynamic settings and characterize the full time profile, rather than the average generosity, of social insurance and transfer policies. By expressing optimal policy as a function of a limited set of statistics, the SS approach has the advantage of making clear the trade-offs implied in optimal tax or benefit formulae and of tightly integrating the theory and the empirics of optimal policy analysis, to offer robust policy guidance. DYNAMICSS will use unique administrative data and cutting-edge econometric techniques to exploit compelling variations in policy profiles and offer significant contributions to the empirical analysis of dynamic behavioural responses to policies. A central contribution will be to create a unique measure of consumption expenditures based on leveraging complete administrative information on income, transfers and wealth to offer ground-breaking evidence of the effect of social insurance on consumption dynamics. Part I will use and extend the SS framework to analyse the optimal time profile of UI benefits. Part II will develop this approach for analysing the optimal design of retirement pension systems. Part III will address optimal family policies with a focus on understanding the different dynamics of men and women in the labour market, and exploring the role of cultural norm

1 049 855 €

Start date: 2016-03-01, End date: 2021-02-28

"The financial crisis, since its start in 2008 has exposed enormous fractures both in the financial architecture and in the structure of the global economy. Although with some notable exceptions, the magnitude of the events caught the finance profession largely by surprise. Clearly, we have to understand better the institutional mechanism channeling savings towards the best uses of capital, and to what extent this mechanism can sometimes fail. The projects in this proposal will push the boundaries of our knowledge in this direction. I suggest a dual approach to achieve this goal. First, we have to improve our understanding of which frictions are the crucial impediments of the efficient functioning of markets. As this approach focuses on particular markets in isolation, I call this the micro approach. I propose three projects within this approach: trading and information diffusion in OTC markets, the crowdedness in limits-to-arbitrage, and the interaction of political uncertainty and sovereign bond prices. Second, from the frictions emerging from the micro approach, we have to select the ones which determine the aggregate liquidity fluctuations in the economy. I use this concept in a broad sense; referring to the changing efficiency with which the financial system allocates resources across investment opportunities. As this approach focuses on the functionality of the financial system as a whole, I call this the macro approach. I propose two projects within this approach. The first project focuses on the determinants of the differences in the financial architecture of different economies. It builds a novel framework to study the dynamics of the financial sector of an economy. The second project studies the role of shadow banking in the fluctuation of aggregate liquidity. In particular, this project concentrates on the fluctuation of the efficiency of private liquidity creation as the state of the economy changes."

1 122 883 €

Start date: 2013-12-01, End date: 2018-11-30

The proposed research will make a contribution towards the analysis and synthesis of large scale complex networks: fundamental theory will be developed and important applications will be addressed, by extending tools from control theory. Networks are present throughout the physical and biological world, but nowadays they also pervade our societies and everyday lives. Major challenges that will be addressed are: I. The engineering of large scale heterogeneous networks that are guaranteed to be robust and scalable. II. The reverse engineering of biological networks. A distinctive feature of the networks we would like to engineer, which falls outside more traditional domains in systems and control, is that of scalability, i.e. the ability to guarantee robust stability for an arbitrary interconnection by conditions on only local interactions. The methodologies that will be developed will have a significant impact in various applications where scalability is important, such as data network protocols, group coordination problems and power distribution networks, as they can lead to network designs with guaranteed robustness, thus avoiding conservative schemes with poor performance. The proposed project will also make a contribution towards the reverse engineering of biological networks at the molecular level. Life in the cell is dictated by chance; noise is ubiquitous with its sources ranging from fluctuating environments to intrinsic fluctuations due to the random births and deaths of molecules. The fact that a substantial part of the noise is intrinsic provides a major challenge in control theoretic methodologies. How can feedback be used to suppress these fluctuations, what are the associated tradeoffs and limitations, and how does nature manage to handle these so efficiently? These are questions that will be addressed by developing tools for analyzing known configurations, but more importantly, by deriving fundamental limitations that hold for arbitrary feedback.

1 498 531 €

Start date: 2016-08-01, End date: 2021-07-31