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International Finance Experts met in Chile to Analyze the Current Financial Outlook

 

About forty researchers and professors from Chile and the world, discussed the last progress in theoretical and empirical financial research during the first version of ‘Santiago Finance Workshop’ (SFW), coordinated by the School of Economics and Business, the Financial Center of University of Chile and the Millennium Institute for Market Imperfections and Public Policy (MIPP).

The activity was hold during two days where the assistants discussed current financial topics, such as bubbles on real estate markets, the economic impacts of climate change, systemic risk, among others.

The key speakers of this workshop were Franklin Allen and Eduardo Schwartz, renowned professors at the Imperial College London and the University of California, respectively. They presented to researchers and the audience their last works on systemic risk and dynamic stochastic general equilibrium.   

Climate Change and Economics

Eduardo Schwartz, professor of Finance at UCLA and former student of Industrial Engineering at Universidad de Chile, opened the first day of Santiago Finance Workshop with the presentation of his last research titled ‘Optimal Carbon Abatement in a Stochastic Equilibrium Model with Climate Change’.

The work studies the climate change through a model of dynamic and stochastic general equilibrium and its impact in the economic growth of countries. The model Schwartz developed, in collaboration with other researchers, is capable of calibrating the effects of climate change above the dynamics of temperature and predicting the impact on productivity that certain shares of countries like China and India would have, when lowering –for example- Co2 emissions.

‘According to the model, there is not a big impact on the productivity or the gross national product of these countries at the moment of taking actions to avoid climate change’, Schwartz pointed out.

Furthermore, the UCLA professor seemed very happy to participate in the first version of SFW, and he emphasized the strengthening of the collaboration between national and international researchers: ‘Groups of very good and positive researchers are being formed here. This first conference on Finance will allow Chilean professors and researchers to be in contact with the best researchers from around the world. This will improve the financial development of the country. Chile is a little bit far from the main financial research centers, that is why Santiago Finance Workshop is a very good start’, he affirmed.

Franklin Allen: Notes on Systemic risk

During the second day of SFW, Franklin Allen, distinguished professor from Wharton School of University of Pennsylvania and the Imperial College London, presented his last research related to systemic risk.

In his presentation, Allen affirmed that systemic risk and financial stability are related to governmental policies and the central bank, which implies financial risk cannot be handled only through bank regulation.

‘This workshop has been very interesting, I have enjoyed every paper on discussion, and I would like to talk about the focus of these days: the financial crisis (…) Crisis are a big event and one important thing is that, among financial services, the bank is not one of the most regulated institutions. Their regulations exist because of the crisis. So, the question is, what has gone wrong?... Because if we prevent every bank from taking risks, we avoid to infect the financial system, and subsequently, we avoid a general crisis. However, this idea completely collapsed because it ignores the systemic risk’, Allen pointed out.

‘I think the subject is simple if we realize that the stability of the financial system depends on the Central Bank and the governmental policies; but with our current way to think, the financial system does not consider that. We must think financial stability in a different way (...) The problem lies in the architectonic form of the financial system, which is too much prepared to control inflation, which suggests a setting where independent central banks are prepared to attack inflation. That is why I think the architecture (of the financial system) does not work to confront future’.

‘The traditional separation among responsibilities of central Banks, financial services authorities and the ministries of finance may not be the most appropriate structure to avoid systemic risk’, Allen affirmed.

Then, he pointed out some examples and suggestions about how a probability of systemic risk can be avoided: ‘To get rid of real estate bubbles through a specific intervention on the property market or to rise resilience of the banking area through countercyclical policies’, he affirmed.

With these ideas and the satisfaction of the participants, Santiago Finance Workshop –which expects to fulfill a new version in 2016-, ended with a friendship dinner among the attendees.

 

 

By Marta Apablaza

Translated by Marcela Cortez

Pictures by Felipe Garrido

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