CFS Lecture by Prof. Robert C. Merton

A special lecture held by Robert C. Merton, Nobel Laureate and Distinguished Professor of Finance at the MIT Sloan School of Management, at Goethe University Frankfurt on 21 January 2013, attracted the interest of more than 600 participants. 

Under the auspices of the Deutsche Bank Prize in Financial Economics, Professor Merton spoke on a new approach for analyzing and managing macrofinancial risks” during his guest lecture. Students, professors, and lecturers of Goethe University, as well as numerous representatives from central banks and the financial industry followed the invitation by the Center for Financial Studies.

Professor Merton’s concept proposes a close coordination of stability measures, monetary policies as well as fiscal and debt policies - due to the increasing connectedness of financial institutions and states in the worldwide financial system: “We propose that the three elements of policy - monetary principles, fiscal and debt policy, as well as financial stability - need to be looked at as an integrated system. When you are considering monetary policy actions, you need to take into account the potential impact on, for example, financial stability.”

Professor Merton is a member of the international Jury who selects this year’s laureate of the Deutsche Bank Prize in Financial Economics.

>>> Lecture Summary

Further details on the lecture:

On a New Approach for Analyzing and Managing Macrofinancial Risk

  • Using modern financial tools such as Contingent Claims Analysis (CCA) to better understand how macrofinancial risks transfer through markets to affect various asset classes, currencies, and investment strategies
  • The application of CCA as a framework for valuing and determining the risk structure of sovereign securities, including on and off balance sheet exposures such as guarantees and feedback loops.
  • Exploring the CCA approach to create an integrated macro modeling of macrofinancial risk, monetary  and fiscal policies for central banks and for investors  to analyze the impact of alternative government and central bank policies.
  • Measuring Connectivity and Influence on Credit Ratings Between Sovereigns and Financial Institutions

 

Opening Address:

Prof. Michael Haliassos

(Chairman of the Jury 2013, Director of the Center for Financial Studies)