To promote research on financial frictions, market performance, and systemic risks, the National Bureau of Economic Research (NBER), with support from the Office of Financial Research (OFR) at the US Department of the Treasury through an inter-agency agreement with the National Science Foundation, is carrying out a multi-year research initiative. Led by NBER researchers Wenxin Du of Harvard Business School, Alp Simsek of Yale University, Chester Spatt of Carnegie Mellon University, and Mao Ye of Cornell University, this initiative strives to bring together researchers in various subfields of economics and financial economics. Core topics for investigation include funding structures, financial intermediaries, capital market frictions, operational and financial linkages across markets, financial stability, and the determinants, detection, and remediation of systemic risk. This initiative encourages interaction between researchers, policymakers, practitioners, and regulators, with the goal of identifying and addressing research questions that are particularly important for public policy. It also works to promote knowledge in the academic community regarding data sets that may be available to external investigators who collaborate with researchers at OFR.
Sixteen research projects received support during the first two years of this initiative. A list of those projects may be found here:
Financial Frictions and Systemic Risk - Research Projects
Subject to funding approval, in 2025 the initiative plans to support another 12 projects. Priority research topics include, but are not limited to:
- The impact of market innovations on securities trading and the response of market participants and financial institutions to these developments.
- The links between availability of collateral, maturity transformation and liquidity management, and aggregate market conditions.
- The relationship between risk factors in the short-term funding markets and the broader financial system.
- The impact of monetary policy and regulatory actions on capital markets, particularly regarding liquidity, short-term funding markets, and systemic risk.
- The role of market microstructure, trading processes, and the identity of market participants on transaction volume, price determination, and market stability.
- Historical as well as prospective and non-traditional sources of systemic risk to financial institutions and financial market infrastructure, including climate, cyber-attacks and other operational risks, and the potential impact of these risk factors on the behavior of individual institutions and on aggregate financial stability.
- The determinants and consequences of changing levels of market inter-connectedness on aggregate market risk and on the performance of markets during times of stress.
- The impact of clearinghouse mechanisms, settlement processes, and related institutions on the functioning of capital markets, particularly in the presence of rare events that lead to financial distress.
- The role of non-bank financial institutions and global financial institutions in affecting the systemic risk exposure of the US financial system.
- The effect of disintermediation in amplifying or dampening financial instabilities and in propagating financial shocks to the real economy and the implications for macroprudential policy.
- The effects of policy interventions before and during financial crises, such as bail-ins and bail-outs, lender of last resort policies, and stress testing, on the allocation of risks within the financial system.
- The role of trading in derivative products offering high liquidity, but tied to underlying assets with limited liquidity in contributing to financial risks.
- The factors leading to the rise of distributed functions for the storage of data, management of risk, and provision of liquidity, and the impact of the distributed structure on the behavior of market participants and the risks of market volatility.
Researchers interested in studying these topics and others related to the broad themes of the initiative should submit a proposal by 11:59pm ET on Wednesday, March 5, 2025. Proposals for both theoretical and empirical projects, from scholars who are early in their careers, with and without NBER affiliations, and from researchers from under-represented groups are welcome. Each proposal must contain the following five components in a single PDF document:
- A project proposal of no more than five pages, single spaced, including references, tables, graphs, and other supplementary material, that describes the research question to be studied, the data and methods to be used, and the composition of the research team that will carry out the project. Preliminary findings are welcome.
- A one-paragraph summary statement explaining the public policy issue that the proposed research could help to inform.
- A budget describing how the grant funds will be spent.
- A curriculum vitae for each investigator.
- A conflict of interest statement describing any financial or other interests of the research team that might bear on the proposed work, especially any ties to financial institutions or firms that may be affected by the proposed research.
Please circulate this call for proposals to colleagues and other researchers who are carrying out research that could be suitable for funding.
The organizers will review the proposals and, in consultation with the research staff at OFR, select projects for support. Researchers whose proposals are selected for funding will be notified in May 2025 or as soon as overall grant support is in place. The research team for each project will receive up to $70,000 of salary support for the principal investigator(s), $15,000 in research assistant support, $7,000 for other research costs such as conference travel, and $5,000 for data purchase.
All projects must have at least one investigator who is a faculty member at a US college or university. All faculty and graduate students budgeted for support must be based at US institutions and eligible to be paid as NBER employees. The NBER will not make sub-awards. All investigators and co-investigators must hold PhDs and will be required to attest to their compliance with the NBER Professional Code of Conduct.
Research teams will be expected to begin their research during the summer of 2025, and to present their findings at a research conference in September 2026. All funds must be spent by December 31, 2026. Questions related to research proposals or other aspects of this research initiative should be directed to Anastasia Daukas at daukasa@nber.org.