Two Grants Advance Research On New Macroeconomic Models And Systemic Risk

Central banks and financial regulators around the world continue to seek better tools to help them monitor and measure system-wide risks that have the potential to trigger financial crises with macroeconomic consequences.

To help meet this need, the Becker Friedman Institute at the University of Chicago has been awarded grants totaling $1.5 million from the Alfred P. Sloan Foundation and the CME Group Foundation to expand its efforts to generate better quantitative models for assessing the economy’s vulnerabilities to disruptions from financial markets.

The grants support the institute’s Macro Financial Modeling (MFM) Initiative. Formed in 2012, this project brings together a group of top scholars to develop and evaluate macroeconomic models that better account for financial sector influences on the aggregate economy. A new generation of quantitative models will enhance our understanding of these linkages. Lars Peter Hansen, director of the institute, and Andrew Lo, director of the Laboratory for Financial Engineering at the Massachusetts Institute of Technology Sloan School of Management, lead the project.

The Sloan Foundation, which founded the MFM initiative with an initial grant of $995,000 in 2011, has pledged an additional $1 million over the next three years. The CME Group Foundation granted the institute $500,000 over two years to continue the project’s core operations. “These new grants will allow the MFM Initiative to build on past success and to push the project in new and important directions,” said Hansen.

The new grant from the Sloan Foundation will support unique activities, including a special summer session focused on expanding the MFM Initiative to engage the rising generation of young scholars. The intensive program will provide hands-on training and discussion of the latest advances, model construction methodologies, tools for assessment, and empirical evidence related to crafting and evaluating sophisticated macro financial models.

CME resources will support the research covered under this broad initiative, including the work of advanced graduate students studying topics relevant to the interplay of financial markets and the macroeconomy. This funding will also allow the MFM Initiative to continue broadening its outreach to public sector research groups and nurturing new engagements with its private sector counterparts.

 

About the Macro Financial Modeling Initiative

Since 2012, this project has engaged top scholars from economics and finance, including five Nobel laureates and many other distinguished researchers. These scholars are committed to drawing upon empirical evidence, including evidence from the recent financial crisis, and modeling advances to provide better guidance for reliable oversight of financial markets. 

In addition to attracting elite economists, this project has already funded 26 young scholars and fostered their interactions with senior researchers engaged in this initiative. The MFM Group makes it a priority to involve the policy community; to date, almost 20 leaders of research departments at central banks have participated in MFM events. Their involvement has encouraged richer dialogues between academic and public sector research groups.

For more information on the MFM Initiative.