SPP 1578: Financial Market Imperfections and Macroeconomic Performance

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The recent financial crisis and its subsequent economic repercussions have underscored the close link between financial market performance and macroeconomic outcome. The central purpose of this Priority Programme is to advance research in Germany at the intersection of macroeconomics and financial economics. The individual research projects analyse the effect of financial market imperfections on financial market stability, macroeconomic volatility and long-run economic growth. The programme is divided into the following five research areas: (1) Incomplete Markets: the macroeconomic consequences of imperfections in credit and insurance markets, (2) Default Risk: limits on the enforceability of contracts and default risk as sources of macroeconomic volatility and as impediments to long-run growth, (3) Bubbles and Expectations: financial market imperfections as the source of expectation driven asset price movements, in particular asset price bubbles and the effect on macroeconomic performance,(4) Financial Intermediation: regulation of financial intermediaries (banks, insurance companies) and the implications for financial and macroeconomic stability, (5) Monetary Policy: the interaction between monetary-fiscal policies and financial markets.