Featured Research

from universities, journals, and other organizations

New software to simulate future financial crises

Date:
December 8, 2009
Source:
ICT Results
Summary:
Can economics better predict how banks will react to future credit crunches and their impact on the wider economy? Breakthrough simulation software by European researchers could hold the answers to this question and more.

Can economics better predict how banks will react to future credit crunches and their impact on the wider economy? Breakthrough simulation software by European researchers could hold the answers to this question and more.

How will economic policies adapt in 2020 when a quarter of the EU population is over 65 and natural resources are dwindling? Can economists better predict future banking crises or economic turmoil? This week, the European Commission unveiled breakthrough research that could help answer questions like these by using economic simulation software.

Produced by the EU-funded EURACE research project (http://www.eurace.org/) that came to a successful end in November, the software applies simulation technology also used for computer generated images (CGI) in movies. The EURACE software platform runs on simulation technology called FLAME (Flexible Large-scale Agent Modelling Environment -- http://www.flame.ac.uk/).

The simulation software predicts the interaction between large populations of different economic actors, like households and companies, banks and borrowers or employers and job-seekers who trade and compete like real people.

By giving each simulated agent individual and realistic behaviour and interactions that show how markets will evolve, these massive-scale simulations can better test new policies tackling future societal challenges.

"This first class European research can help us make the move from the economics of pen and paper to the economics of super-computers," said Viviane Reding, EU Commissioner for Information Society and Media.

"The results of this research project will complement traditional economic statistics and assumptions about how economic actors react by enabling better testing of a policy's effects on people while still on the drawing board. I expect government researchers and national research institutes will act quickly to put this tool at the disposal of decision-makers as soon as possible," noted the Commissioner.

This simulation technology uses computer-based experiments to focus on the relationship between large populations of different economic actors across many interconnected markets. It is the first time this sort of technology is applied on such a big scale using high-powered computing.

Each simulated household (or business, or bank) will make different decisions in reaction to various monetary, fiscal or pro-innovation policies including, for example, whether to remain in a job or seek a new one, how much of a wage is saved, spent or invested. This means that the impact of one policy in one market at one point in time is no longer assessed in isolation from other factors.

Predicting the unpredictable?

Traditional economics failed to predict the scale of the knock-on effect of the credit crunch on the world economy. The new software shows how banks react in different ways by looking at a wide range of factors like how much reserves they must keep compared to investments, their savers' consumption/investment and saving patterns, and psychological factors like confidence in the market. It can then give policy-makers -- who want to know how fiscal and monetary reforms will affect banks and customers -- a better warning of the scale of a financial crisis' impact on the real economy. The software can also simulate the same scenario with an older demographic to help plan for an older Europe, or with limited energy supplies.

Designed to run on supercomputers that allow simulation to be carried out on a massive scale but accessible to any connected desktop PC, the software can be used by economists and policy-makers with no knowledge of computer programming. By connecting hundreds of thousands of small simulated actions and reactions across the economy, the software can give policy-makers better and bigger pictures of their policy impact on people's life and work.

Igniting the flame

The three-year project was carried out by economists and computer scientists from eight universities (in Italy, France, Germany, Turkey and the UK), brought together by the EU and financed from the European Commission's technology research budget.

The €2.5 million project which started in 2006 was co-funded with €2.1 million under the Commission's Sixth Framework Programme for research. It was part of the European Commission's initiative to boost high-risk research in future and emerging information technologies.

The Commission recently called on EU countries to increase high-risk research investment to catch up with the US, China and Japan. The Commission will lead by example, boosting the current €100 million annual funding 70% by 2013.


Story Source:

The above story is based on materials provided by ICT Results. Note: Materials may be edited for content and length.


Cite This Page:

ICT Results. "New software to simulate future financial crises." ScienceDaily. ScienceDaily, 8 December 2009. <www.sciencedaily.com/releases/2009/12/091206183404.htm>.
ICT Results. (2009, December 8). New software to simulate future financial crises. ScienceDaily. Retrieved October 23, 2014 from www.sciencedaily.com/releases/2009/12/091206183404.htm
ICT Results. "New software to simulate future financial crises." ScienceDaily. www.sciencedaily.com/releases/2009/12/091206183404.htm (accessed October 23, 2014).

Share This



More Science & Society News

Thursday, October 23, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Chameleon Camouflage to Give Tanks Cloaking Capabilities

Chameleon Camouflage to Give Tanks Cloaking Capabilities

Reuters - Innovations Video Online (Oct. 22, 2014) Inspired by the way a chameleon changes its colour to disguise itself; scientists in Poland want to replace traditional camouflage paint with thousands of electrochromic plates that will continuously change colour to blend with its surroundings. The first PL-01 concept tank prototype will be tested within a few years, with scientists predicting that a similar technology could even be woven into the fabric of a soldiers' clothing making them virtually invisible to the naked eye. Matthew Stock reports. Video provided by Reuters
Powered by NewsLook.com
Jet Sales Lift Boeing Profit 18 Pct.

Jet Sales Lift Boeing Profit 18 Pct.

Reuters - Business Video Online (Oct. 22, 2014) Strong jet demand has pushed Boeing to raise its profit forecast for the third time, but analysts were disappointed by its small cash flow. Fred Katayama reports. Video provided by Reuters
Powered by NewsLook.com
U.S. Issues Ebola Travel Restrictions, Are Visa Bans Next?

U.S. Issues Ebola Travel Restrictions, Are Visa Bans Next?

Newsy (Oct. 22, 2014) Now that the U.S. is restricting travel from West Africa, some are dropping questions about a travel ban and instead asking about visa bans. Video provided by Newsy
Powered by NewsLook.com
US to Track Everyone Coming from Ebola Nations

US to Track Everyone Coming from Ebola Nations

AP (Oct. 22, 2014) Stepping up their vigilance against Ebola, federal authorities said Wednesday that everyone traveling into the US from Ebola-stricken nations will be monitored for symptoms for 21 days. (Oct. 22) Video provided by AP
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:

Strange & Offbeat Stories


Science & Society

Business & Industry

Education & Learning

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins