What is MACFINROBODS

In this project 11 European Universities collaborate with the European Commission’s Joint Research Centre in a consortium of experienced researchers in the field of macro- and financial economics and macroeconomics, supported by an advisory board of influential academics of the highest worldwide reputation and policy makers at central banks and finance ministries.

The three-year project (2014-2017) is funded by the European Commission and brings together different lines of research to systematically develop new behavioural and institutional model building blocks, to integrate such features in policy-focused models and to make use of these models in a new framework for policy evaluation. The intended research program is best summarized using the following four headings:

  • A Beyond representative agents: disaggregated modelling
  • B Beyond ad-hoc assumptions: modelling financial sector institutions and imperfections
  • C Beyond the lack of realism: integration into policy-focused macroeconomic models
  • D Beyond the scientific vacuum: robust model-based policy design

The interaction of these four lines of research is broadly illustrated in the figure.

 

MACFINROBODS is the acronym for:

“Integrated Macro-Financial Modelling for Robust Policy Design”

The acronym is inspired by Karel Capek's 1920 play R.U.R. (Rossum's Universal Robots), which introduced the word "Robot", and Isaac Asimov's "I, Robot" tales of artificial beings becoming more and more human just as our models' agents are expected to display more realistic human behaviour. The futuristic theme serves to underscore the urgent need for scientific innovation in our area of research. While it would seem to be a spelling error, the letter "D" in MACFINROBODS is meant to remind us that models neither could nor should be perfect representations of reality. Instead, they represent simplifications that ideally capture the key elements needed for deriving useful policy recommendations.

 

In terms of building blocks, one line of research moves beyond the assumption of representative and homo-oeconomicus-type agents to incorporate micro-behavioural realism in decision making, while a second line of research advances the modelling of financial institutions, their fragility and the dynamics of systemic risk. The third line of research integrates these new building blocks (including a selection of those developed by researchers outside the consortium) in a new generation of policy-focused macroeconomic models. In parallel, in the fourth line of research new policy evaluation tools are developed, with a focus on robust tools aimed at containing financial contagion and boom-bust cycles, maintaining fiscal sustainability and coordinating monetary, fiscal and regulatory policies in normal and crisis regimes.

The consortium comprises researchers with a strong track record in advancing the frontier on behavioural and institutional modelling, highly influential macroeconomic modellers as well as seasoned veterans of model-based monetary, fiscal, and regulatory policy evaluation and design. Consortium members have strong academic backgrounds as well as substantive practical experience at policy-making institutions.