Bachelor case studies research presented at Society for Financial Econometrics Conference

The project began as a 2016 bachelor case studies project looking into whether US macroeconomic data (the “Flow of Funds” data from the Federal Reserve) could be used for inference about systemic risk.   Seeing promise in the novel approach the students used, Professor Lumsdaine invited the students to continue their research in collaboration with her.  Janssens and Vermeulen agreed, and have continued to work on the paper while pursuing their master’s degrees.  The resulting paper, “An Epidemiological Model of Economic Crisis Spread Across Sectors in the United States,” was presented by Janssens at the SoFiE conference.  Lumsdaine also attended the conference.

The paper employs a well-known epidemiological model typically used in the context of disease transmission (the Susceptible-Infected-Removed, or SIR, model of Kermack and McKendrik, first proposed in 1927) to consider how economic downturns in one sector of the economy may lead to weakness in other sectors.  From a policy perspective, such a model might provide guidance during a financial crisis to policymakers seeking to deploy limited resources for the purpose of providing economic stimulus.  Economists and policymakers often use health-related metaphors to describe the state of the macroeconomy (using, e.g., terms such as contagion and spread to characterise the transmission of economic shocks, as well as describing economic “recovery”); the work by Janssens, Lumsdaine, and Vermeulen formalises that association.

‘It was an unforgettable experience,’ Janssens said of her first international conference.  ‘To be able to present our research and receive feedback from such a distinguished audience was truly an honor.”  Among those in attendance was Robert F. Engle, winner of the 2003 Nobel Prize in Economics and co-founder of SoFiE.

Professor Lumsdaine has a long track-record of collaborating with students from Erasmus School of Economics to conduct original research, resulting in publications in Demography, European Economic Review, and the Journal of Behavioral Finance.  ‘The SoFiE Conference is the pre-eminent conference in financial econometrics,’ said Lumsdaine, who was elected a SoFiE Fellow in 2015 and also serves on the governing Council.  ‘For a student who has not yet begun her PhD to have a paper accepted onto the main program of a conference of this caliber is a remarkable achievement, and a testament to both the quality of the training at Erasmus School of Economics and the amount of hard work that these students have put into the project, even after completing their bachelor degrees’.  Beginning this fall, Janssens will begin a PhD at University of Amsterdam while Vermeulen will continue with his PhD at Erasmus University Rotterdam.