Monetary and fiscal policy measures proved inadequate to tackle the financial crisis that threatened the collapse of large financial institutions around the world and led to European contagion. An EU initiative aims to introduce innovative macroeconomic models to successfully respond to such crises.
To minimise systemic risk in the financial system, European policymakers have implemented several measures, including liquidity provisions, quantitative easing and nationalisations. However, they are largely unproven and their effectiveness is unknown. There is a need for a theoretical foundation that will identify causes for banking crises and measure the effectiveness of potential crisis intervention policies.
Further details: Novel models to mitigate systemic risk