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Q&A with Marcin Michalski, PhD

After completing his BSc in Management (International Business Economics) and MSc in Finance at Manchester University, Marcin is now in the second year of his PhD studying financial stability and central bank policy in the wake of the global economic crisis. He is a University of Manchester President’s Doctoral Scholar for 2014.

Tell us about your PhD?
I have been looking at regulations in the wake of the financial crisis and, in particular, the Basel III international banking regulations which were developed in the wake of the crash to promote stability in the global financial system. As things stand, we still have no idea whether these new regulations are going to work and prevent another crisis.

What makes you say that?
Basel III has very good intentions but perhaps does not have the means to achieve its objectives. The regulations are tailored to the experience of the 2007-2009 crisis so the problem is that it is not forward looking and only addresses the causes and symptoms of the previous crises.

Despite what happened in the most recent crash, modern macroeconomic models still do not fully take the workings of the global financial system into account. The dominant view in pre-crisis macroeconomic literature is that the financial system simply moves capital from one place to another and does not need such in-depth analysis. As such, part of my work has been trying to create a simple theoretical model via which we can explore these issues and look at how central bank policy and capital requirements interact with one another.

What conclusions have you reached so far?
One of the clear implications is that central banks and policymakers have to be more proactive in ensuring the financial system is stable. Central banks have a very good view of how the real economy is performing, while they are also at the heart of the financial system. This gives them the unrivalled ability to gauge the extent to which risks are building up in the financial system.

Before the crisis the central concern for central banks was inflation targeting. People have now realised that central banks need to have more concerns. They are the important link between what happens in the financial system and what actually happens in the real economy. The approach until now has been that the financial system is capable of correcting itself.

What are you planning to study next?
I am interested in why downturns tend to be much deeper after a banking crisis and whether it is because regulators are too eager to intervene, and this is probably going to be the topic of my second PhD paper. We have now lived through several years of Quantitative Easing and zero, or near zero, interest rates in most developed countries. Yet credit conditions still haven’t returned to normal. This remains one of the most puzzling things about the last few years. We have had these unprecedented interventions but no real impact.

What role can academics play in this whole debate?
A very important one. Research into these areas can ultimately help policymakers make better decisions because financial markets are so difficult to model. In the wake of the crash there is increasing demand for academic help to explain what is happening in the global economy.