The Prize in Economic Sciences in memory of Alfred Nobel 2022, commonly known as the “Nobel Prize in Economics” has just been awarded to Ben Bernanke, Douglas Diamond and Philip Dybvig. According to Prof. Kenza Benhima and Prof. Philippe Bacchetta of HEC Lausanne (UNIL), the three winners have had a profound impact on their field of study and more generally, on improving the management of financial crises.
Economists have not always known how to manage financial crises. The research conducted by Ben Bernanke, Douglas Diamond and Philip Dybvig on the role of financial intermediation, its fragility and its role in the transmission of macroeconomic shocks has helped economists understand them more clearly and shown how macroeconomic policies could tackle them more effectively.
This research was critical at the time of the Great Recession of 2008-2009, particularly in terms of the implementation of new, unconventional policy tools, such as “credit easing”, by central banks – policies in which Bernanke played an active role as President of the US Federal Reserve. The latter, through his research on the Great Depression and the financial accelerator, along with Diamond and Dybvig, with their research on banking crises, understood the crucial role played by central banks as a lender of last resort during liquidity crises.
Above all, this Nobel Prize underlines the fact that research in economics has practical applications for macroeconomic and financial policies.
The research by Diamond and Dybvig and their model of bank runs have inspired researchers working in areas other than banking crises. They have, for example, been applied to help understand the crises in emerging countries after the Asian crash, but also more recent events, such as the collapse of the cryptocurrency, Terra. This work and Bernanke’s research also helped macroeconomists to factor banks and financial friction more effectively into their models following the 2008-2009 financial crisis.
There are close links between teaching and research in the Department of Economics at HEC Lausanne and these Nobel Prizes. One class on the Master’s in Economics course is devoted to the analysis of financial crises, delivered by Prof. Gianluca Benigno, while another, focused on financial institutions, is delivered by Prof. Adrian Bruhin. The research interests of several professors relate to macroeconomic policies in the presence of a financial accelerator, and to financial stability. In particular, Prof. Philippe Bacchetta has studied the international aspects of this approach and was awarded an ERC Advanced Grant for his work.