• Mea­sure of change

No­bel-win­ning econ­o­mist Robert En­gle sug­gests im­prove­ments to cap­i­tal al­lo­ca­tion for fast-grow­ing SMEs

China Daily European Weekly - - Life - By LIU XIANGRUI li­ux­i­an­grui@chi­nadaily.com.cn

Amer­i­can econ­o­mist Robert En­gle gave Chi­nese of­fi­cials some ideas on how to make China’s fi­nan­cial sec­tor more ef­fi­cient.

En­gle, win­ner of the 2003 No­bel Prize in eco­nom­ics, along with Bri­tish econ­o­mist Clive Granger, was in­vited to Bei­jing last week by the State Ad­min­is­tra­tion of For­eign Ex­perts Af­fairs to give his sug­ges­tions on risk man­age­ment in China’s cap­i­tal mar­ket be­cause of his ex­per­tise in study­ing volatil­ity.

Fi­nan­cial in­sti­tu­tions should be sub­jected to reg­u­lar stress tests to see if they re­main sol­vent enough in the face of an eco­nomic down­turn. The re­sults of such tests should be pub­lished pub­licly and be­come bench­marks for the per­for­mance of banks so that they do a more ef­fec­tive job of choos­ing where the loans go, he says.

“I think that many more ben­e­fits will come from im­prov­ing al­lo­ca­tion of cap­i­tal to the fast-grow­ing SMEs, which are also job creators,” says En­gle, 75.

He and Granger are rec­og­nized for de­vel­op­ing the ground­break­ing sta­tis­ti­cal model, called the au­tore­gres­sive con­di­tional het­eroskedas­tic­ity, de­signed to an­a­lyze un­pre­dictable move­ments in mar­ket prices and in­ter­est rates. The method can also mea­sure systematic risks in fi­nan­cial mar­kets, es­pe­cially on a short-term ba­sis.

“If you try to pre­dict a year in the future, it’s very com­pli­cated. If it’s a day in the future, that’s not so hard,” he ex­plains. “If we talk about risk man­age­ment for fi­nan­cial ap­pli­ca­tions, maybe short-hori­zon pre­dic­tions are enough.”

En­gle earned a master’s de­gree in physics be­fore he went on to ac­quire a PhD in eco­nom­ics from Cor­nell Univer­sity in 1969.

“I de­cided that I wanted to work on some­thing that more than 10 peo­ple in the world will un­der­stand,” he says of the rea­son be­hind chang­ing streams in aca­demics.

While study­ing eco­nom­ics was at first a “slow and painful process”, En­gle be­lieves his back­ground in physics and sta­tis­tics even­tu­ally helped him stand out as an econ­o­mist.

“Be­cause in physics we do ex­per­i­ments to mea­sure some com­pli­cated things and fig­ure out what they re­ally mean. That’s the same way we do eco­nomic anal­y­sis,” he says.

A long­time pro­fes­sor of eco­nom­ics, En­gle now teaches at New York Univer­sity’s Stern School of Busi­ness, where he is the Michael Armellino pro­fes­sor of fi­nan­cial ser­vices man­age­ment.

En­gle paid his first visit to China in 1985, when he was in­vited to teach an econo­met­rics course at Ren­min Univer­sity of China in Bei­jing. Dur­ing the six-week pro­gram, which was spon­sored by the Ford Foun­da­tion and China’s Min­istry of Ed­u­ca­tion, En­gle and two other Amer­i­can teach­ers taught stu­dents from dif­fer­ent parts of the coun­try.

Chi­nese stu­dents were rather quiet back then, and he did all sorts of things, in­clud­ing giv­ing them small sou­venirs, to get them to talk.

As part of the trip, En­gle toured Shang­hai, Guilin and Chengdu and vis­ited many tourist sites in the cities.

“China has changed so dra­mat­i­cally in 30 years. That’s ex­tra­or­di­nary.”

Peo­ple in Bei­jing were still wear­ing old-style blue out­fits in the 1980s, and there were very few cars and ev­ery­body was rid­ing a bi­cy­cle. It was also hard to find peo­ple who spoke English, and he had to get some­body to write down in Chi­nese the name of his ho­tel so that he could tell a taxi driver to take him back, En­gle says.

“If they (Chi­nese au­thor­i­ties) can fig­ure out what’s the right thing to do, they’ll do it. And they’ve been very good at that,” he adds.

En­gle, who is on an ad­vi­sory board of the Chi­nese Acad­emy of So­cial Sci­ences, comes to China more of­ten th­ese days, at­tend­ing con­fer­ences and giv­ing talks.

In 2014, En­gle launched a Shang­hai branch of the Volatil­ity In­sti­tute of the Stern School of Busi­ness as part of a New York Univer­sity ini­tia­tive there. He is di­rec­tor of the in­sti­tute.

NYU Shang­hai, which was es­tab­lished by New York Univer­sity and East China Nor­mal Univer­sity, is the first Sino-US univer­sity cam­pus.

Op­er­ated in close part­ner­ship with the Stern School and ap­ply­ing tools such as an award-win­ning model to an­a­lyze data, the Volatil­ity In­sti­tute at NYU Shang­hai pro­vides fi­nan­cial in­for­ma­tion and anal­y­sis of the mar­kets on its web­site for econ­o­mists, reg­u­la­tors and even the gen­eral pub­lic.

The Shang­hai in­sti­tute has co­op­er­ated with the stock ex­change and univer­si­ties in the south­ern me­trop­o­lis, and has also started an an­nual con­fer­ence series that brings ex­perts to dis­cuss China’s fi­nan­cial sys­tem, En­gle says.

De­spite his busy sched­ule as a high-pro­file econ­o­mist and a reg­u­lar teach­ing sched­ule, En­gle tries to stick to hob­bies like fig­ure skat­ing and danc­ing.

But when­ever he gets a chance to re­lax, he finds a lot of ques­tions run­ning through his mind.

“I al­ways look for sim­ple an­swers,” says En­gle, who re­wards him­self with sim­ple plea­sures like a cup of cof­fee ev­ery time he fig­ures out an an­swer.

“Many more ben­e­fits will come from im­prov­ing al­lo­ca­tion of cap­i­tal to the fast-grow­ing SMEs, which are also job creators.” ROBERT EN­GLE US econ­o­mist


ROBERT EN­GLE, No­bel lau­re­ate, makes a speech at an eco­nomic fo­rum in Nankai Univer­sity in Tian­jin in Oc­to­ber 2016.

EN­GLE AND HIS WIFE MARY at­tend the fo­rum at Nankai Univer­sity, where he is an hon­orary pro­fes­sor.

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