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Connecting Silos: On linking macroeconomics and finance, and the role of econometrics therein

Michel van der Wel

ERIM Inaugural Address Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.

Abstract: The crises of this century have stressed how intertwined macroeconomics and finance are in practice. This intertwinement was absent in most economic models. This led to calls for economists to step out of their specialized silos. Since then, the literature of macro-finance, which studies the relationship between asset prices and economic fluctuations, has been developed. In this inaugural address, I argue for a prominent role of econometrics to study the macro-finance interaction. Key elements such as mixed frequencies and the selection of factors can be incorporated using recent econometric advances. I discuss some of the results, such as estimation of continuous-time equilibrium models for macroeconomic and financial series, as well as characteristics of trading on financial markets after macroeconomic news releases. Finally, I discuss the outstanding challenges, which include developing a yield curve model based on macroeconomic foundations, modeling how financial markets anticipate news releases, and developing a macro-finance model for European bond markets taking into account the large heterogeneity across the continent.

Keywords: Macro-Finance; Econometrics; Financial Econometrics; Fixed Income; Time Series Econometrics; Term Structure of Interest Rates; macro-economie; economische crises; econometrische modellen; financiering; obligaties; tijdreeksen (search for similar items in EconPapers)
JEL-codes: C58 (search for similar items in EconPapers)
Pages: 44
Date: 2020-01-31
New Economics Papers: this item is included in nep-fdg, nep-his, nep-hpe and nep-mac
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