Macro-Financial Modeling


The financial crisis of 2007–2009 revealed serious gaps in our ability to define, measure, and manage financial sector activities that pose risks to the macroeconomy as a whole. Current macroeconomic models typically used for quantitative and empirical investigations are not well designed to account for important financial sector influences on the aggregate economy. To address these deficiencies, the Macro Finance Research Program launched the Macro Financial Modeling (MFM) project to develop and assess more ambitious macroeconomic models. The MFM Project is a collaborative venture to develop and assess enhanced macroeconomic models that better account for important financial sector influences on the economy. The project closes the gaps in our ability to define, measure, and manage financial sector activities that pose risks to the macroeconomy as a whole. View full MFM project website.

The Macro Financial Modeling (MFM) Project endeavors to bridge these gaps by bringing together elite scholars in macro and finance from all over the world, junior scholars at the start of their research careers, policy makers, and leaders from the financial industry. The project is sponsored by the University of Chicago’s Becker Friedman Institute under its Macro Finance Research Program (MFR) in collaboration with MIT’s Laboratory for Financial Engineering. The project is led by Lars Peter Hansen, David Rockefeller Distinguished Service Professor and Director of the MFR Program at the University of Chicago, and Andrew W. Lo, the Charles E. and Susan T. Harris Professor of Finance at the MIT Sloan School of Management.

The project brings together a network of prominent scholars and innovative early career researchers actively working in this field. Since 2012, the project group has met regularly to discuss and critique current and proposed models. With input and regular involvement of policymakers, the group is working to develop the next generation of policy tools. One major focus of this 9-year-effort cultivate emerging scholars in this area, through dissertation support and opportunities for students to present and refine their work. Participants gain insights from central bank research departments distinguished researchers, and peers at the frontiers of research in this area through presentations and interactions at targeted events and conferences.

Throughout the years, the MFM project has been generously supported by the Alfred P. Sloan FoundationCME Group Foundation, and Fidelity Management & Research Company.

This research initiative works to construct better, more comprehensive models for assessing systemic risk stemming from activities in the financial sector that can impact the economy as a whole. To encourage new research in this area, we are funding relevant dissertation proposals that examine:

  • Macroeconometric models and methods with financial sector constraints
  • Software and tools that evaluate new macroeconomic models
  • Approaches to defining, measuring, and monitoring systemic risk
  • Macroprudential regulation
  • Fiscal challenges from the public sector
  • The role of accounting in financial stability