Large grant awarded for research on crises and economic inequality
Research into how crises affect households unequally has received a grant of SEK 17 million from the Swedish Research Council. The purpose of the project is, among other things, to gain insights into how to design economic policies that effectively prevent and limit the consequences of crises.
Since the year 2000, Sweden and large parts of the world have been hit by significant crises – crises that have been markedly deeper than other crises in the Western world in the post-war period:
• The recession of 2007-2009 (with after-effects and debt crises in Europe)
• The Covid-19 pandemic with subsequent inflationary shocks
Both crises have meant large average losses to our economic well-being. They have also made it clear how crises, typically speaking, affect households differently - crises make inequalities in society more visible.
"Through the project, we want to understand how crises affect our societies and the interaction between the course of a crisis and inequality in wealth and income," says Per Krusell.
Focus lies on the role of financial markets.
First, the 2007-2009 crisis had its origins in financial markets with built-in vulnerabilities – they collapsed in the US leading to huge knock-on effects – and this makes these markets important to study.
Second, financial markets play a central role in deep economic crises: either as a trigger or, as during the pandemic, when central bank measures were important to prevent an even deeper crisis followed by a weaker recovery.
Based on micro data and computationally intensive economic models, the researchers hope to gain insights into how economic policy should be designed.
"There is an interesting interplay between financial markets and economic inequality. Better functioning financial markets tend to equalize economic conditions. At the same time, financial vulnerabilities can arise if, for example, banks are too generous in their lending to financially weak groups." says Roine Vestman.
Many researchers from Stockholm University are involved. Participating from the Institute for International Economic Studies (IIES) is Per Krusell, who is also responsible for the project, as well as Kieran Larkin and Tobias Broer, and from the Department of Economics, Roine Vestman. A number or researchers from the Swedish House of Finance at the Stockholm School of Economics (SSE) are also participating in the project.
The project is expected to run during 2023-2028.
Last updated: November 18, 2022
Source: Institute for International Economic Studies (IIES)