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The Cambridge-INET Institute

Faculty of Economics

Studying at Cambridge

 

Research Themes

Networks, crowds and markets

Transmission mechanisms and economic policy

Information, uncertainty and incentives

Empirical Analysis of Financial Markets

Social, economic, and infrastructure networks are a defining feature of modern economies. The Networks Theme at the Cambridge-INET Institute is one of the world’s strongest cluster of researchers in this dynamic and fast growing field. There are three broad themes of work. One line of research is concerned with the dynamics of networks. This is motivated by topical problems such as technological innovation, financial contagion, cybersecurity, disease epidemics, supply chain disruptions and international conflict. A second strand of work explores the relationship between markets, states and community networks; how traditional communities shape the behaviour of individuals and groups in a modern economy. This work has important implications for the optimal design of development policy. A third research theme explores bargaining, production and exchange in networks, with implications for industrial policy and the regulation of markets. The Cambridge-INET Networks Group is unusual in its diversity, both with regard to the methods we use – theory, experiments, and statistical analyses with observational data – and the areas we work in – spanning micro and macro analyses in developing and developed economies and covering the three research themes discussed above. 

The “Transmission Mechanisms and Economic Policy” theme at the Cambridge-INET Institute brings together researchers conducting fundamental research in macroeconomics. We use a variety of approaches – encompassing micro and macro econometrics, macro models and historical and institutional analysis – to develop theoretical and empirical work on a wide range of issues, from firm growth and firm churning to household level savings and inequality, from unemployment dynamics to supply chains, from the analysis of monetary policy to international finance and global imbalances. Our research aims to generate inputs for stabilisation and structural policy. 

Microeconomics starts from the premise that phenomena should be understood as a result of individual choices. These choices are determined by the incentives that individuals face, and by the psychological make up of these individuals. Furthermore, competition, coordination and learning are vital in aggregating individual choices, and thereby shaping them into the collective behaviour observed in markets and even whole economies.This theme brings together researchers working on individual and group decision making, bargaining, risk sharing, contracts, behavioural approaches to savings decisions, evolutionary economics, experimental economics and competition among firms. The application of these works has been to diverse areas such as financial markets and banking, epidemiology, trust and social norms, decision making in human organ transplantation. It is hoped that a better understanding of individual choices will allow policy makers to eliminate some of the more obvious design flaws in their policies, and that a better understanding of how these choices interact to determine collective outcomes will help to identify policies that result in more stable collective outcomes (possibly at the expense of sacrificing some features that appear desirable at the individual level). 

Financial markets serve the important function of transferring risk across individuals and over time, and they provide information on the performance of firms and economies. As such their effective performance is of great interest to policymakers, pension holders, and consumers, yet recent events have created profound mistrust about their operation. The theme brings together researchers working on fundamental methodological issues that can help provide evidence on the functioning of financial markets. We have several projects concerned with market microstructure, about how the trading environment impacts the outcomes for long term investors and policy makers. Does the presence and use of advanced technology improve or degrade outcomes for pension funds and retail investors? What is the best way of measuring volatility with a view to comparisons across markets and across time? Does the presence of market stabilisation mechanisms such as circuit breakers reduce the potential for nonlinear feedback loops and volatility spillovers across securities and markets? Speed is one aspect of current financial markets, but big data is another. The vast databases and the improved hardware and software environments mean that the research cutting edge is constantly being redefined to take account of the better possibilities for evidentiary analysis. We have several projects and researchers who are at the forefront of this work.

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Coordinators:

Coordinators:

 

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