The US subprime crisis of 2008/9 and the following global economic and financial crisis as well as the euro crisis has triggered a new debate about adequate structures and regulation of financial markets as well as the role of the public sector and free markets in modern economies, which has had repercussions both in academia and in the policy-making world. Global imbalances, asset price bubbles, dangerous debt trends, growing income inequality and stagnation of aggregate economic activities have become widely discussed topics.
On the national, European and international level, policy makers have tried to use various tools to come to grips with these problems. Overall, there has been a growing sense that the current architecture of the global financial and trading system does not well promote economic growth and stability.
The key question the research cluster is trying to address is in how far an appropriate regulation and supervision of financial markets, an appropriate regulation and/or deregulation of labour markets as well as the international monetary and trade order and an appropriate macroeconomic management (including monetary and fiscal policy) can guarantee a stable financial system combined with a sustainable economic growth process.
This broad question translates into a number of sub-questions:
- Financial Market Regulation and Oversight Reform: How can financial market regulation and oversight structures be designed in order to best combine macroeconomic stability, global financial stability and a stable path of economic growth and development? How do OECD-countries, emerging markets and developing countries differ in this respect?
- Public Banks: Which role can public banks and cooperative banks play in promoting regional development and macroeconomic stability?
- Monetary Policy and Financial Stability: Which contribution does monetary policy make in the emergence of asset price bubbles? What can and should central banks do in order to prevent or correct asset price bubbles? In how far does the choice of a specific exchange rate regime contribute to the danger of asset price bubbles?
- Ecologic sustainability: How can measures be designed which address both the existing economic challenges and the global ecological crisis?
- Inequality: Which role has growing economic inequality played in the genesis of recent economic
- International Capital Flows: Which role do international capital flows play in the development of poorer countries? In how far do they contribute to the stability (and instability) of the global economy? Which role did international capital flows play in the genesis and spread of the recent economic and financial crisis? How can negative effects of international capital flows be mitigated?
- Global Economic Governance: Which global institutions for the management of exchange rates and capital flows are necessary to insure medium- and long-run stability for the world economy?
- Development Strategies: Which growth strategies (i.e. export-led growth with an undervalued currency) are compatible with a stable global economic environment? Which role should the state play here? What are legal limits to such strategies in the current global trade and financial order?
- Exchange Rate Volatility and Financial System Stability: What is the role of exchange rate movements for the stability of financial systems and the development process in general? What are the conclusions for economic policy makers from this interaction?
- Impact of Emerging Markets on OECD countries: How does the rise of emerging market economies affect global trade as well as global finance and how does this impact developed countries?
All questions are both covered from the perspective of developed as well as developing countries, taking into account institutional specifics of the countries concerned. A specific focus is moreover put on the reforms and reform debates in the European Union and its member states over the past years.