Project funded under the Socio-economic Sciences and Humanities

This project has received funding from the European Union’s Seventh Framework Programme for research, technological development and demonstration under grant agreement no. 612955

The ability of financial markets to bear risk is central to economic welfare and stability. Growth and economic wellbeing is inhibited if financial markets are unable to transfer resources efficiently from the suppliers of liquidity to entrepreneurs. However, this proper functioning of financial markets has been distorted by levels of volatility considerably in excess of those implied by fundamentals.

Markets have undergone dramatic crashes and they display speculative bubbles with market prices far removed from their equilibrium values. Economic research hashither to been able to make only limited progress in resolving these important practical and policy relevant issues of the apparent instability in financial markets.

This proposal seeks to develop elements of a new paradigm which (i) explicitly takes into account the existence of various forms of heterogeneous, boundedly rational behaviour in financial markets as well as in goods and labour markets, (ii) investigates the potential of such behaviour to generate bubbles, crashes and a system-wide break down of activity as collective outcomes of individual activities, (iii) investigates the linkages and repercussions between the complex area of financial activity and real economic activity which could be affected by e.g., the cancellation of credit lines and a breakdown of expected liquidity provision, (iv) studies how the transmission channel of monetary policy works in times of distress in the financial markets (particularly the interbank market) and how it could restore the credit flow from banks to companies operating in the real sector. We will adopt a methodologically pluralistic approach trying to augment existing macro models and construct new (agent-based) ones from bottom-up.
The results will provide insights into the consequences of different modelling paradigms for the conduct of monetary policy, and in particular, appropriate reactions of monetary authorities to prevalent financial distress.
FinMaP: Financial Distortions and Macroeconomic Performance:

Disclaimer: The views expressed during the execution of the FinMaP project, in whatever form and or by whatever medium, are the sole responsibility of the authors. The European Union is not liable for any use that may be made of the information contained therein


This website is maintained by the Chair of Monetary Economics and International Finance at CAU Kiel.

Grant Agreement No. 612955
FP7 theme: SSH-2013.1.3-2
Project Start: 1 January 2014
Coordinator: Prof. T. Lux

Press Release, 16 January 2014

First FinMaP
Policy Clinic 2016


Financial crisis:
causes, policy responses, future challenges
Outcomes of EU-funded research


Agent-Based Economic Modelling:

First Ancona-Milano Summer School on AB Economics

Ancona, 1-5 September 2015