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Paying attention to detail

"For people to exchange goods and services they need the time and resources to find a match."

By exploring the links between financial markets and a healthy economy, Professor Pedro Gomis Porqueras' research is focused on improving social wellbeing.

A country’s economic performance has wide-reaching and significant impacts. It not only affects the everyday present of individuals, households and organisations but also shapes how they see the future.

Macroeconomics – which looks at broad economic drivers and the relationship between issues such as unemployment, income and inflation – is a key research area that enables academics and policymakers to address a country’s economic needs and help prevent future recessions and depressions.

Chair in economics at Deakin Business School (DBS), Professor Pedro Gomis Porqueras’s research career largely focuses on the links between macroeconomics and financial markets.

He says that traditionally, finance models are developed without ‘too many details about the macroeconomy’. This means that the final analysis often doesn’t incorporate enough information on how the health of an economy affects – and interacts – with various financial markets.

‘This rapidly-growing research area explores the linkages and channels between the financial sector and the real economy. It estimates the impacts of alternative fiscal and monetary policies on financial and goods markets,’ he explains.

It’s often assumed that trading goods and services for money is a straightforward process but Prof. Gomis Porqueras says this exchange is neither a simple nor seamless.

‘For people to exchange goods and services they need the time and resources to find a match – or to buy and sell what they want. The actual matching process and information frictions can restrict trade and how transactions are settled.’

By paying attention to the ‘details of the exchange process’, he says that many issues can be addressed which are often difficult to analyse in the traditional competitive and frictionless markets.

‘For example, in the labour market there is the simultaneous existence of unemployment and unfilled job vacancies, the effect of unemployment insurance on searching for a job, the duration of unemployment, and the match quality.’

For a macroeconomist, examining these imperfections – or ‘frictions’ – is key when thinking about sound economic policies that can improve the welfare of society.

‘The severity of these frictions typically depend on how markets are organized. This leads to fascinating feedback effects which, in my opinion, are useful in describing findings that can better inform policy,’ he explains.

This aspect of Prof. Gomis Porqueras’s research – examining the frictions that policymakers consider important – helps governments look for alternative, optimal monetary and fiscal policies.

‘Recent financial crises emphasise the importance of this as they’ve revealed the close interconnection between financial conditions and the real economy,’ he adds.

With a PhD in economics from the University of Texas (USA), Prof. Gomis Porqueras was initially drawn to economics while working as a research assistant at the university’s Fusion Research Centre.

He says the appeal of studying macroeconomics lies not only in its mathematical rigor, but in the immediate impact it’s able to have on society.

‘The day-to-day activities of households and firms are directly affected by government policies,’ he says. ‘These regulations take the form of laws that specify how things can be done, how the fiscal authority allocates funds among different government programs, how the central banks set interest rate policy, or by the various schemes the fiscal authority has at its disposal to generate government revenues.’

Prof. Gomis Porqueras says it’s not surprising that regulation ‘profoundly affects’ the everyday life of individual and organisations.

‘From the type of goods and services households buy, the financial instruments through which they save, how they borrow, the type of goods and services that are imported or exported, to the quality of health care for the elderly. The study of economics is able to shed light on such issues which play a key role in shaping society’s welfare.’

With a respected, international career, Prof. Gomis Porqueras has had his research published in many high-ranking journals including International Economic Review, Journal of Economic Theory, Journal of Money, Credit and Banking, European Economic Review and Economic Theory.

He says that being able to contribute to a research area that’s focused on improving society’s wellbeing provides the platform for a highly-enjoyable career.

‘It’s very rewarding to undertake research that aims to make a difference to the community by providing new empirical, quantitative and theoretical findings that can help inform policy.’

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