CRISIS

CRISIS is the Complexity Research Initiative for Systemic Instabilities, a consortium of universities, private firms and policymakers that aims to build a new model of the economy and financial system that is based on how people and institutions actually behave.

It was set up in the wake of the global financial crisis that showed that existing models that had been adequate for the good times were utterly inadequate for predicting major crises.

CRISIS is a consortium of researchers from 11 leading European academic and private sector institutions, supported by an advisory board of senior current and former policymakers and financiers. The three-year project (2011-2014) is funded by the European Commission.

The goal is to build new models, one for the EU financial system and one for its macroeconomy. When they are completed, CRISIS will turn the models into software that can be used by central banks and governments. For that reason, CRISIS will work in collaboration with major central banks, government economic and finance ministries, and with multilateral institutions.

CRISIS aims to develop tools to deepen policymakers’ understanding of the economic and financial system and give them realistic options for modelling the economy and designing policies and regulations. It will deliver three products:

• A model of the EU financial system and macroeconomy, with a user-friendly graphical interface and a web-based gaming mode.
• A granular database of households, firms, and financial institutions.
• Analyses of critical EU financial and economic issues based on the model.

The Project Coordinator for CRISIS is Domenico Delli Gatti (UCSC), Milan, Italy. The Scientific Coordinator is Doyne Farmer (UOXF), University of Oxford, UK. The Chief Engineer is J. Kieran Phillips (UOXF), University of Oxford, UK.

The members of the CRISIS Advisory Board were:

• Andrea Enria, Chairman, European Banking Authority
• Diana Farrell, Director, McKinsey Center for Government, former Deputy Director of the National Economic Council, US White House
• Andrew Haldane, Executive Director, Financial Stability, the Bank of England
• Lex Hoogduin, Professor of Economics, University of Gronigen, former Board Member, Bank of the Netherlands
• Paul Jenkins, Distinguished Fellow, Centre for International Governance Innovation, former Deputy-Governor, Bank of Canada
• Mitchell Julis, Co-Chairman and co-CEO, Canyon Capital Advisers
• Hans-Helmut Kotz, Visiting Professor, Harvard, former Executive Board Member for Financial Stability, Deutsche Bundesbank
• Ewald Nowotny, Governor, National Bank of Austria
• Gus (Lord) O’Donnell, Former Cabinet Secretary and former Permanent Treasury Secretary, British Government
• Svein Harald Oygard Former Deputy Finance Minister, Norway, Former Governor Bank of Iceland
• Simon Potter, Executive Vice President, Markets Group, Federal Reserve Bank of New York
• George Soros, Chairman, Soros Fund Management
• Coen Teulings, Director, Netherlands Bureau of Economic Policy Analysis
• Jean-Claude Trichet Chairman of Bruegel and former President of the European Central Bank
• William White, Chairman, Economic Development and Review Committee of the OECD, former Executive Committee
• Member, Bank for International Settlements (BIS)
• Michael Wilens Vice Chairman, Fidelity

Contact details:

Email: [email protected]

Tel +39 (0)2 7234 2483

Why is CRISIS needed?

The global financial crisis destroyed the faith that both policymakers and the general public had in the traditional economic models and thinking that had failed to foresee the disaster.

The CRISIS project aims to fill that gap by developing a new approach to economic modelling and understanding risks and instabilities in the global economy and financial system.

In his opening address to the European Central Bank’s annual conference on 18 November 2010, ECB President Jean-Claude Trichet said “macro models failed to predict the crisis”, adding: “In the face of the crisis, we felt abandoned by conventional tools”.

The models and tools that central banks, finance ministries, and regulators still use today generally rely on three key assumptions:

Households, firms, and governments are perfectly rational and tend to behave in similar ways to each other. Markets always ensure supply and demand balance and the economy settles into a balanced “equilibrium” state. The detailed institutional structures and interconnections of the financial system – the ‘plumbing’ of financial markets – do not generally matter for macroeconomic policy. One lesson from the crisis was that the models failed to match how people and institutions behaved. This meant all three assumptions were wrong: markets failed to clear; major economic imbalances emerged; and the plumbing connections had systemic impacts on the economy.

The CRISIS model will be very different from current models in a number of key ways. It will:

• be a “bottom-up” rather than “top-down” model that takes account of the different ways households, firms and governments behave;
• incorporate the latest evidence from behavioural economics;
• collect new data on how people make decisions using experimental economic techniques;
• explicitly look at the network and institutional structure of the financial system and how that impacts on the economy; and
• test the model using empirical data.

Contributors

The scientific code authors of CRISIS include:

J. Kieran Phillips, Ross Richardson, Daniel Tang, Milan Lovric, Victor Spirin, Olaf Bochmann, Aurélien Vermeir, Bob De Caux, Marotta Luca, Sebastian Poledna, Christoph Aymanns, Anatolij Gelimson, Gérald Gurtner, Luke Friendshuh, Ermanno Catullo, Ariel Y. Hoffman, Jakob Grazzini, Peter Klimek, James Porter, Alessandro Gobbi, Richard O. Legendi, Fabio Caccioli, Fulvio Corsi, Tamás Máhr and Rajmund Bocsi.

CRISIS in a European Commission FP7 project. The partners of the CRISIS project and the host institutions of the authors included:

Università Cattolica del Sacro Cuore (UCSC), The Chancellor, Masters and Scholars of the University of Oxford, Universiteit van Amsterdam (UvA), Centre de Recerca en Economia Internacional (CREI), MedizinischeUniversitaet Wien (MUV), The City University (CITY), AITIA International, Inc. (AITIA), Università degli Studi di Palermo (UNIPA), Commisariat à l'Energie Atomique et aux Energies Alternatives (CEA), Università Politecnica delle Marche (UPM) and Scuola Normale Superiore di Pisa (SNS).

Indirect contributors include:

Balázs Bálint, Gábor Ferschl, Attila Szabó, László Gulyás, Zsolt Kúti, Gábor Szemes, Balázs Adamcsek, Tibor Baranya, Viktor Erdélyi, Márton Ivány, Róbert Mészáros, Ervin Mikus and J. Doyne Farmer.

Usage

The CRISIS software comes with a desktop GUI. To run the GUI, run eu.crisis_economics.abm.dashboard.Dashboard.java.

It is recommended that CRISIS applications are processed with a maximum Java heap size of at least 8Gb. If your system can utilize an 8Gb heap, this can be specified (at the time of writing) by adding -Xmx8g to the VM argument list.

License

The CRISIS software is released under the GNU General Public License, Version 3, 29 June 2007. Documentation included with the CRISIS software is licensed under the GNU Free Documentation License, Version 1.3, 3 November 2008.