Sunday, May 20, 2012

Office of Financial Research

Just after the crisis, a group of scholars associated with quantitative finance (mathematicians, finance professors, financial economists, etc) got together with practitioners and regulators and formed a committee to lobby for the creation of a National Institute of Finance. The idea was to gather data and expertise to monitor, analyze and potentially prevent future crises.

Against all odds, the idea was enshrined in the Dodd-Frank act and became the Office of Financial Research. It has the potential to create an unprecedentedly useful database and spur paradigm shitting research with far reaching implications to the way finance is understood and practiced, and has already attracted some of the best minds in the field.

Naturally, the Republicans want to kill it.

Mathematics of New Financial Systems

That was the theme of the recent Hot Topics Workshop at the IMA in Minneapolis.

I was delighted to see many old friends doing some really interesting mathematics on relatively new topics, like systemic risk and stochastic portfolio theory.

My small contribution to the workshop was on the Keen-Minsky model for the dynamics of credit for the economy as a whole (see paper here). Because the workshop was open-minded by construction, many of the economists in attendance refrain from attacking the model too heavily, despite some of my provocative remarks (e.g "macroeconomics is too important to be left at the hands of macroeconomists").

All in all I came away encouraged and optimistic about the prospect of future contributions of mathematics to economics.