Basic info
Acronym
MACROPRU
Grant agreement
Grant Agreement no. 101023445
Maximum amount
EUR 224 933.76
Type of project
Marie Skłodowska Curie Standard European Individual Fellowship
Start and duration
Start: 1.10.2021
Duration: 24 months
Title
Investigating new policies for financial stability that do not create inequality
Beneficiary
The Chancellor, Masters and Scholars of the University of Oxford (UOXF)
Mathematical Institute, University of Oxford
Institute for New Economic Thinking at Oxford Martin School, University of Oxford
Supervisor
J. Doyne Farmer is a Professor of Mathematics at the Mathematical Institute (University of Oxford) and he is the Director of Complexity Economics at the Institute for New Economic Thinking at the Oxford Martin School. In the Mathematical Institute, he is involved in Mathematical and Computational Finance Group (one of the world’s leading research groups in the area of mathematical modelling in finance) and the Mathematical Data Science Group (a founding mathematical partner of the Alan Turing Institute and the UK’s national data science institute). Prof. Farmer has led projects on systemic risk and financial instability, which have been funded by inter alia the National Science Foundation (USA), the Institute for New Economic Thinking (USA), the Alfred P. Sloan Foundation (USA), the European Commission (FP7 project CRISIS) and Amlin Insurance (UK). He has been a consultant to the European Central Bank, Innovative Finance Policy Advisory Board and Chairman of the Board of Directors, Scientific Investment. He was an Oppenheimer Fellow and the founder of the Complex Systems Group at Los Alamos National Laboratory. He has published 250 papers that have more than 40 225 citations (H-index: 80).
A summary of the action
The primary aim of the action was to investigate how new macroprudential policies could influence financial stability without contributing to the inequality in a society. In this project, we applied cutting-edge, agent-based simulation techniques to uncover the redistributive effects of macroprudential policies and to examine the optimal combinations of the macroprudential tools from the social welfare perspective. The results of this project complemented the conclusions that have been extracted from the ECB system-wide stress-testing exercises by providing data on the rise of inequality in EU countries due to the adoption of new financial regulations. It also supplemented the macroeconomic impact assessment for the Basel III reforms (cost-benefit “Growth-at-Risk” approach).
This project also expanded our knowledge about an innovative tool, namely, agent-based modelling, which can be used in financial oversight. It provided us with the practical knowledge of how to take the heterogeneity of the agents in the models into account and how to apply the new Bayesian estimation techniques. The results of the project can guide policymakers and central bankers on how to reshape financial regulations and to calibrate macroprudential policies in order to minimise adverse social effects and to reduce inequality (by supporting a social policy). The project is consistent with the European Commission’s support on research programmes on the public sector and social innovation that is described in the Europe 2020 Flagship Initiative Innovation Union.
The researcher was fully integrated into Prof. J. Doyne Farmer’s Complexity Economics team at the INET Oxford and at the Mathematical Institute of the University of Oxford. The fellowship gave the applicant the opportunity to perform relevant and state-of-the art research in the best institute of complexity economics in the world, to strengthen her position as an independent research group leader and to initiate new long-term collaborations.
https://www.inet.ox.ac.uk/research/programmes/complexity-economics/
The objectives of the action:
- The first objective was to study the mechanisms through which macroprudential policies could affect the level of inequality and generate welfare costs.
- The second objective was to examine the optimal combinations of the macroprudential tools from the social welfare perspective.
- The third objective was to construct and analyse a new agent-based model that can uncover the redistributive effects of macroprudential policies.
The project is implemented in five work packages (WPs) and five milestones (Ms). The following strategy has been adopted to achieve the research goals:
- (WP3) First, the theoretical research on the mechanisms through which different macroprudential instruments affect income and wealth distributions were conducted.
- (WP4) Second, econometric analyses were performed to identify the channels through which different macroprudential instruments affect the level of inequality in selected EU countries (the econometric methods address concerns about endogeneity and reverse causality). These channels were included in the MACROPRU model.
- (WP5) Third, using the agent-based MACROPRU simulation, the redistributive effects of macroprudential policies in the predefined scenarios were tested.
The tasks that were crucial in developing the agent-based simulation and for completing the project:
- Researching the mathematical foundations of an agent-based model (dynamical systems and networks) (WP3)
- Conducting statistical and econometric analyses on the microdata (WP2)
- Creating one, consistent database in PostGreSQL (WP2, M2.1)
- Constructing an agent-based simulation (algorithms) and connecting it to the database (WP5, M5.1)
- Developing counterfactual scenarios of the impact of a set of macroprudential instruments on the system (WP5)
- Calibrating and estimating the model (WP2)
- Performing simulations and interpreting the output data for each scenario (WP2)
- Quantifying the uncertainty of the results (WP2, M2.2)
- Validating, verifying and testing the model (WP5, M5.2)
One of the most important aims of the MSCA fellowship is to ensure the two-way transfer of knowledge between the researcher and the host and to provide highly relevant trainings to the researcher. The MSCA fellow has been integrated in the Complexity Economics Group at the INET Oxford. Her participation in group meetings enabled her to improve her knowledge and skills. The researcher's contribution to the creation of the agent-based macro models and macroprudential policies was also important for the group's research. The Fellowship was also be a remarkable opportunity for her to develop excellent international networking opportunities and to improve her career development possibilities. The training was focused on improving the fellow’s research, management and communication skills. For more info see the CV in the section About me.
The exploitation of results
The results of these actions were exploited by maintaining the collaboration with the University of Oxford and initiating new, interdisciplinary projects in Poland, thereby starting to build up a complexity community in Poland that would become an important part of the scientific landscape.
The details of the algorithms, as well as the results of the simulations, were deposited in the “CoMSeS, Open ABM, Big Data Hub” (open access). This provided a valuable platform for new research projects to be developed after the completion of the project. Researchers are able to use this information as a foundation to create future work in these areas.
Any intellectual property arising from the project is handled by the Oxford Intellectual Property Research Centre, which advises on the best practices and opportunities for exploitation. The applicant complies with the employment conditions in relation to confidentiality, knowledge and intellectual property rights.
Dissemination of the results
The general policy at the University of Oxford is to promote “new economic thinking” and free access to knowledge and groundbreaking scientific research, either by making new techniques available or by assuring open access to all publications. Therefore, in order to communicate the research results, the fellow will either publish papers in open access scientific journals or place them on preprint servers (such as arxiv) in order to maximise their availability. The simulation results are available for download on the INET Oxford webpage. In order to share the project’s results with the research community, the applicant presented her findings at international conferences, which increase their public visibility. A series of short visits were undertaken to give seminar talks and to build collaborations with risk and complexity science research groups around the world. For more info, see the Blog and About me (CV).
The fellow engaged the general public using mass and social media. For this purpose, she has developed a strategy based on building a project website “Monetarist in Heels”, which contains links to YouTube videos and posts on Facebook, LinkedIn and ResearchGate. The distribution of information about the project was started by advertising it through people who are potentially interested in the subject (on Facebook and LinkedIn). While Facebook and YouTube permitted the project activities to be communicated to a younger audience, the use of LinkedIn drew the attention of the multipliers among professionals and members of the EU financial oversight institutions.
Articles were also published in the press. In addition, the fellow participated in the European Researchers’ Night, where she explained the results of her project to the public so that non-specialists can understand it. She also became involved in the Oxford outreach activities (Mathematical Institute and INET webpages, OxfordSparks, Instagram, X).
The public engagement activities contributed to creating an awareness of the performed research by informing and inspiring the public, by listening to public views and by collaborating with the public. The goals of ‘The University of Oxford Public Engagement with Research Strategic Plan’ were followed to ensure a highest impact.
The research within the MACROPRU project made a demonstrable contribution to society and the economy. This includes both an academic impact and an economic and societal impact. The published research results enhanced the understanding and advanced scientific methods (in particular agent-based modelling), economic theory and its application across and within disciplines. In addition, the research had an impact on society and the economy, and it also benefits individuals, organisations (central banks and financial oversight institutions) and nations. It showed us how we should calibrate macroprudential policies in order to support social policy and thus to create a more equal society.
Ethics & Research Integrity
The University of Oxford conducted the action in compliance with:
- ethical principles (including the highest standards of research integrity)
- applicable international, EU and national law.
In addition, the beneficiary respected the fundamental principles of research integrity as set out, for instance, in the European Code of Conduct for Research. This implies compliance with the following fundamental principles:
- reliability in ensuring the quality of research, which was reflected in the design, the methodology, the analysis and the use of resources;
- honesty in developing, undertaking, reviewing, reporting and communicating research in a transparent, fair and unbiased way;
- respect for colleagues, research participants, society, ecosystems, cultural heritage and the environment;
- accountability for the research from conception to publication, for its management and organisation, for training, supervision and mentoring and for its wider impacts
- and means that the beneficiary must ensure that the individuals who conducted the research tasks followed good research practices and refrained from any of the research integrity violations that are described in this Code.
This did not change the other obligations under the Grant Agreement or obligations under applicable international, EU or national law, all of which will still applied.
The MACROPRU project underwent an ethical review. The researcher took part in a number of trainings on ethics and research integrity at the University of Oxford.
Originality and innovative aspects of the research programme
There are clear scientific, methodological and socio-economic reasons for conducting the MACROPRU project. It is consistent with the attempts to underpin a social market economy within the “Europe 2020” Strategy, as well as with the European Commission’s support on research programmes on the public sector and social innovation.
The results of the project might guide policy makers and central bankers on how to reshape financial regulations and calibrate macroprudential policies in order to minimise the adverse social effects and to reduce inequality (by supporting social policy). The project expanded our scientific knowledge about a new innovative tool that can be used in financial stability oversight, namely agent-based modelling.
Gender equality
The University of Oxford took all measures to promote equal opportunities between men and women in the implementation of the action. It aimed, to the extent possible, for a gender balance at all levels of the personnel who were assigned to the action, including at the supervisory and managerial levels.
The host has strongly supported the career development of the MSCA fellow after her maternity leave.
The subject of the project also relates to the issue of gender equality. Examining the role of prudential policies requires an interdisciplinary approach to fully understand what effects they have on different social groups or whether gender inequalities occur.
