Political Economy of Financial Markets

This programme at the European Studies Centre on the Political Economy of Financial Markets (PEFM) was created in 2012. Through a network of academic, official and private market experts, it aimed to foster research into the political-economic drivers of changes in financial markets, in light of the global and euro area financial crises. It focused in particular on issues situated at the intersection of macroeconomics and financial studies, and it is concerned with the institutional setting in which policy towards financial markets is formed at the national and European levels. The PEFM programme was based at the European Studies Centre of St Antony's College, and was affiliated with the Centre for International Studies in the Department of Politics and International relations. The programme's Founding Director was the late Max Watson until 2014. The initial funding for the programme was assured by a grant from the Financial Market Policies Foundation, a registered UK charity.

The Political Economy of Financial Markets Programme aimed to shed light on the way in which institutions, including macroeconomic policy frameworks, interacted with financial markets. In the wake of the global and euro area crises, it sought to promote a better understanding of financial markets and to contribute to improved policy formulation and execution in the future.

The programme was established in October 2012 (by the late Max Watson, as its first Director) at the European Studies Centre, St Antony’s College, Oxford. Its main activities were to carry out research, hold seminars and workshops, and publish findings in outlets that range from academic articles and books to policy briefings and op-ed pieces in the international press. In addition to events hosted at St Antony’s College, PEFM Oxford co-hosted seminars and workshops with other institutions, including (inter alia) Oxford’s Global Economic Governance programme (GEG), the Royal Institute of International Affairs (Chatham House), the Austrian National Bank and Global Strategy Forum; PEFM Associates have also presented seminar papers and provided policy briefings to the International Monetary Fund, H. M. Treasury, the Bank of England, the European Stability Mechanism, and the European Commission.

A number of research groups have gained considerable traction under the PEFM Oxford programme, bringing together academics, officials, and market participants:

• The first research topic concerns experience with Monetary and Financial Integration in Europe – analysing why this has not lived up to expectations, exploring how and whether it can be fixed, and assessing the implications for banking and fiscal union in the Eurozone and for EMU governance generally (including e.g., the “two pack”, “six pack”, and “Fiscal Compact”). This has been the topic of numerous PEFM seminars and workshops over the past two years, and remains a very live issue.
• The second current research topic covers the area of Financial Sector Regulation – starting with the problem of “regulatory capture”. This inquiry first explored the evolution of relations between bankers and regulators (including the role of political and ideological influences) during the run-up to the global financial crisis. It has also examined in depth the various proposals for reform of global financial institutions (e.g., “ring-fencing”, Basle III, etc.) that have been put forward in the wake of the crisis.
• A third research topic under study is Macroeconomic Policies and Financial Stability – focusing on the question how monetary and fiscal policy regimes can build in the capacity to respond to destabilising imbalances in the private sector, without jeopardizing transparency, accountability and overall macroeconomic stability. This research strand has included extensive work and debate on the role of “macro-prudential” instruments in dealing with bubbles and other financial anomalies.
• A fourth research initiative concerns the role of Ethics in Finance – the erosion of which may have contributed to (or even caused) the global financial crisis. This is a developing and interdisciplinary area of study (combining economists, lawyers, philosophers, historians and political scientists), questioning the premise that regulation alone is sufficient to ensure sound financial practice, and exploring whether and how ethics in finance could be better defined, encouraged, and/or enforced.

Several new research priorities have emerged from these primary initiatives. These include (i) spillover effects from advanced economy regulatory reform to emerging markets; (ii) the implications of “shadow” banking for financial stability; (iii) financial sector reform in Africa; and (iv) global consistency in the policing of financial sector regulation.

The programme's Director was Dr Charles Enoch (St Antony's College), and Administrator was Julie Adams (European Studies Centre, St Antony's College).

The work of PEFM Oxford was overseen by an Academic Steering Committee chaired by Dr Enoch, composed of a number of distinguished academics and policy makers in the fields of economics, politics and international finance.

In addition, PEFM Oxford drew on the work of a number of Associates as contributors to its programme.

Core funding for the programme was assured by a grant from the Financial Market Policies Foundation (www.fmpf.org) and by private donations.