The Extended Problem Solving Workshop (EPSW) will run for three weeks with up to five groups of graduate students and postdocs working under the supervision of a faculty mentor on the following problems proposed by our partner institutions:
(1) OECD problem: Effectiveness of policy interventions in different countries and lessons for the future
In the midst of interconnected health, economic, social and environmental crises, policymakers struggled for effective solutions and conventional approaches were often inadequate. Efforts to keep the economy going during the Covid epidemic highlight that there is no trade-off between the pandemic and the economy. As vaccines are now being rolled out, attention is now shifting to focus on how to promote the recovery and deal with resulting debt. In addition, there are increasingly urgent social and environmental issues which have a significant and growing impact on economic policy as governments search for integrated solutions to these problems. There is a large consensus that the most important crisis with which we will be faced in the near future is that associated with the environment and climate change.
A recent report by the Institute for New Economic Thinking highlights the futility of the strategy of “sacrificing lives to save the economy”, namely that countries that refused to implement lockdown or other restrictions in order to protect economic activity ended up with out-of-control epidemics and economic losses roughly proportional to cumulative deaths, whereas countries that imposed strict lockdown measures experiences comparable economic losses but significantly lower number of deaths. The focus of this group will be to expand on the work done by INET researchers and analyze the effectiveness of specific policies, with special emphasis on recommendations for the remainder of the current pandemic and best practices for future ones.
Subproblems include: how to understand and deal with the disconnect between financial markets and the Covid economy; how to assess and deal with changes in productivity; How could we use the recovery from the Covid pandemic to make the investments necessary to radically change the course of our system to prepare it for the climate crisis while also enhancing productivity, managing high debt levels and maintaining financial stability?
Representative from partner institution: William Hynes (OECD)
(2) Bank of Canada problem: Business closures in the time of COVID
The birth or death of a firm is a significant event in any economy. Bankruptcies and proposals, court-driven mechanisms to resolve firm insolvencies, are typically well studied, but it is known that most firm exits are voluntary closures that are not included in traditional economic time series. The Bank of Canada has identified an urgent need for new methods to detect firm exits of all kinds in real time, as a key indicator of the true health of the economy.
As of December 2020, Canadian GDP was 3 percent below its pre-COVID level of December 2019, after recovering from a drop of 17 percent in April 2020. Yet, the total number of business bankruptcies and proposals in the year ending December 2020 was 25.9 percent lower than in the previous 12 month period. This fact clearly conflicts with our anecdotal awareness that many small businesses continue to close, and strongly suggests the need for an index of firm exit rates that includes those not related to insolvency.
A number of potential approaches for detecting firm closures in real time will be compared in this project, that may involve web scraping and databases available from sources such as google. Ultimately, the best approaches will be combined to create a prototype Real Time Firm Exit Index for Canada, which can be validated and back-tested on available historical time series.
Representative from partner institution: Thibaut Duprey (Bank of Canada)
(3) Canadian Securities Transition Office problem: COVID and Global Capital Flows
The global economic-stimulus responses to the COVID-19 crisis far exceeded those of the global financial crisis of 2008, and large part of the COVID-19 stimuli were responded by governments in developed countries, where capital movement is generally unrestricted. In a post-COVID-19 world, how would the rapid increase in money supply impact on
• the volatility of cross-border capital flows,
• asset inflation,
• the risk of financial tsunami, especially for countries with small open economies, like Canada?
https://www.bis.org/publ/qtrpdf/r_qt2103c.htm
Representative from partner institution: Ian Buckley (CSTO)
(4) Finance Canada problem: the need for a new class of crises models
This group will focus on the following questions motivated by the Covid-19 crisis:
1. How can we best prepare for the next crisis when we do not know what the source is?
2. How should we determine the trade-off between resilience and efficiency?
3. How do you introduce institutional and social factors into a theoretically economically sound mathematical simulation model?
Representative from partner institution: Claude Lavoie (Finance Canada)
Advisors
Vinicius Viana Luiz Albani (Federal University of Santa Catarina)
Angus Armstrong (Rebuilding Macroeconomics Network)
Soheil Baharian (Bank of Canada)
Ayush Chopra (MIT Media Lab and PathCheck
Monica Cojocaru (University of Guelph)
Matheus Grasselli (McMaster University)
Tom Hurd (McMaster University)
Julian Vikan Karaguesian (Finance Canada)
Alan Kirman (EHESS, Paris)
Igor Linkov (US Army Corps of Engineers)
Manuel Morales (Universite de Montreal and PathCheck)
Rohan Sukumaran (PathCheck)
Ben Trump (US Army Corps of Engineers)
William White (C.D. Howe Institute)
Jorge Zubelli (Khalifa University)
Schedule / Format
Each problem will be presented in detail on the first day of the workshop by the proposing partner and faculty mentor. Students and postdocs will have a chance to discuss different problems and form balanced groups according to their preferences and skills. The workshop will proceed with each group working remotely, with regularly scheduled video calls. In addition, representatives from each group will provide short updates to all groups to share insights, methods, and results, as all the problems have a common theme and can benefit from cross-collaboration. The workshop will end with a full day of presentations of the solutions for the problems, including a discussion of the main findings involving all workshop participants.
