Global Interactions in Risk management and in Macroeconomic policy making

A second key starting point in macroeconomic research in CIMF is the increased economic integration and globalization that has taken place in the last twenty years. Several aspects of macroeconomic and financial behaviour stem from increased globalization and are currently major research topic in CIMF. One area of interest is the analysis of financial crises and the mechanisms underlying them. Contagion between different markets and countries and herding behavior is based on the idea is that economic agents, e.g., investors have sometimes incentives to imitate each other in their decision making and these mass movements result in major fluctuations and crises in speculative markets. Another major research project focuses on the macroeconomic consequences of globalization and openness, which is changing the linkages and transmission mechanisms between different markets, countries and macroeconomic policies. In collaboration with researchers from the NY Federal Reserve Bank and the European Central Bank a new global model has been developed that provides a coherent framework for a systematic and comprehensive analysis of the real and financial linkages in the world economy. The global model is already used as an economic engine in conditional credit risk models with significant results to be published in the Journal of Money, Credit, and Banking, and an NBER volume on Risk Management. Further extensions and uses of the global model are one of the research priorities of CIMF.