Recently, at the Macroeconomy and Finance in China Conference held by the Macro Finance Research Program at the University of Chicago’s Becker Friedman Institute for Economics and Tsinghua University School of Economics and Management, National Business Daily interviewed Lars Peter Hansen, 2013 Nobel Prize recipient and David Rockefeller Distinguished Service Professor in Economics, University of Chicago.
Professor Hansen said that China’s economy is becoming more and more open, especially in the fields of capital markets, financial markets, and foreign investment. He feels that this is a very good policy and goal and hopes it can play out in these terms. Although China’s economy is enough to provide a buffer for some of the Chinese economy’s own turbulence, there will certainly be more uncertainties after Chinese market opening up. However, in general, the advantages outweigh the disadvantages.
Opening does not necessarily cause instability
In July this year, the Office of the Financial Stability Development Committee of the State Council of China launched 11 measures to open the financial industry on the basis of in-depth research and evaluation, including encouraging foreign financial institutions to participate in the establishment and investment of wealth management subsidiaries of commercial banks; relaxation of foreign insurance companies entry conditions, canceling the 30-year operating life requirement; allowing foreign institutions to obtain Class A lead underwriting licenses in the interbank bond market; further facilitating foreign institutional investors to invest in the interbank bond market.
However, there are also some concerns in the market: Will China’s greater financial openness threaten China’s financial security and stability? How can we find a balance between opening up, financial stability, and macro stability?
In this regard, Professor Hansen told the reporter from National Business Daily, “This is a very important and interesting issue. First, I want to state that I only understand some aspects of China’s reforms at a macro level, and I am not familiar with the specific details. But I do see that the Chinese economy is becoming more and more open now, especially in the fields of capital markets, financial markets, foreign investment, etc. I think this is a very good policy and goal, and I hope it can play out in these terms. ”
“Opening does not necessarily cause instability”, Professor Hansen believes, there are many reasons for this. For example, being more open to foreign investors may be able to better share market risks, and everyone can better resist and respond to insecurity. Certainty, companies can also get more financial support. From this perspective, these reforms can promote economic growth.
He said although China’s economy could provide more buffers for the turmoil, there will certainly be more external uncertainties entering the Chinese market after opening up. However, in general, the benefits outweigh the disadvantages, and he is pleased to see the Chinese government pursuing such reforms.
Additionally, Professor Hansen also mentioned at his age, it’s a wonderful miracle to come to China and meet individuals who are developing these technologies and applying them and see how smart they are in statistics, finance, and economics, and 45 years ago, there was none of that here.
A wise policy decision is to study uncertainty as much as possible
Professor Hansen is an important expert in dynamic economics. With the methods of macroeconomics, finance and statistics, he has been working at the forefront of economic thinking and modeling research. He has made many outstanding contributions in how economic entities respond to changing and risky environments. He has put a lot of effort into developing statistical methods that explore the interrelationship between macroeconomic indicators and financial market assets, and these methods have been widely used in empirical research in financial economics today.
Recently, his work has focused on uncertainty and its relationship to macroeconomic medium- and long-term risks, interpreting economic and financial data, and revealing the long-term importance of policy choices. Professor Hanson, Professor Sargent, and their collaborators have recently been studying methods for modeling economic decisions in an environment where uncertainty is difficult to quantify. They explore the importance of financial market models and characterize environments in which the beliefs of economic actors are fragile.
“From the perspective of a statistician, we mainly study how to interpret and sort out data,” Hansen told reporters. The world today is full of complexity and uncertainty. To try to solve these problems is very difficult. Even so, they still need to do economic analysis. Many people may simplify some situations when doing economic analysis, but he feels that it is important to explore these complexities.
He further pointed out that as statisticians and economists, they are trying to model individuals, groups, businesses. These economic entities will make various decisions. They must have a certain degree of forward-looking ability to be able to make smart decisions to deal with the complexity and uncertainty of the world. Economists also face the same problem when they are modeling, hoping to understand these market fluctuations and give a new interpretation.
Professor Hansen said, “The same is true for policy makers. When making policies, economists who can influence policies often pretend that they know all the answers, but in fact they do not know. So, a more sensible way to make policy decisions is to study these uncertainties as much as possible, and then give a reasonable explanation. How to overcome these uncertainties is what we focus on. I would like to quote from Mark Twain, education is the path from cocky ignorance to miserable uncertainty, and our academic research is to alleviate this pain for everyone. ”