Video: Information, Markets, and the Macroeconomy

Logo of the European Research Council (ERC)

In this video, Victoria Vanasco (CREI, UPF and BSE) talks about her ERC Starting Grant project that explores the causes and effects of information asymmetries in financial markets.

Video transcript

Victoria Vanasco:

We know that financial markets play an essential role in allocating an economy’s
resources to their most productive use, and by doing so they can foster investment,
employment, innovation, and growth.

We also know, however, that malfunctioning financial markets can expose economies to
large fluctuations and crises, and even hinder long-term growth.

There is substantial evidence that financial markets are plagued with information
asymmetries, which arise when some people in the marketplace have better
information than others. Such information asymmetries have played an important role
in the build-up towards crisis and the resulting economic collapses.

We would like to understand what happens in the economy to create such information
asymmetries, and how these asymmetries interact with investment decisions, aggregate
market liquidity, or economic cycles.

In my ERC project, I will be looking for answers to these questions.

First, I will develop microeconomic frameworks to uncover the drivers of information
asymmetries in markets. I plan to do so by studying how economic conditions affect
agents’ actions, such as choosing to design complex assets or to trade in opaque
markets. I will complement this research with an empirical analysis of the determinants
of asset complexity in the data.

Second, I will study how information asymmetries, and resulting incentives to invest and
trade in markets, fluctuate over the cycle and across economies. I will do this by
embedding the insights from my microeconomic frameworks into dynamic, general
equilibrium, macro settings.

When we understand the causes and effects of information asymmetries in financial
markets, we will be able to design better financial and macroprudential regulation.
Better regulation will help reduce financial and economic instability and promote
sustained growth.

This video series is one of the Barcelona School of Economics research initiatives supported by the Severo Ochoa Research Excellence Program (CEX2019-000915-S) through Spain’s State Research Agency (Agencia Estatal de Investigación – AEI).