 Why do freddos now cost so much? I don't know what freddos are. What? You grew up in the UK? I did. I did. I don't eat sweets. I'm here in Cintra, Portugal at the invitation of the European Central Bank and they've invited me to come here to make a video about economics, which is a subject that I know absolutely nothing about. But fortunately, there are some people here who I've been able to ask for some help with at least the basics. It's a great question. What is economics? It's a very difficult question, I would say. You know, I think the first thing to bear in mind is that there isn't one answer and economics is appealing because it's sort of, in some broad sense, it's the study of how humans make decisions. Well, the definition is something to do with the management of limited resources. Why do I get the impression I'm in over my head here? We're here in Cintra because there's a conference happening about central banking so there are a bunch of incredibly important economists here, like people who head up central banks from all over the world. But I'm not here to talk to them. I've been brought here by the ECB to talk to some PhD students who are here presenting their research to these economists. So I was brought here to have a chat with them about their theses. My name is Karin, Cintra, and my research is in subsidies in the housing market. So my name's Jonathan, sometimes I go by Joe. I'm interested in wage setting. So my PhD focuses on financial economics and macroeconomics. You're from Ukraine, you're studying the US economy in the UK. So what's the definition of globalisation? I am the definition maybe. So my name is Michel, I'm a PhD student at the University of Oxford and my research is in macroeconomics, supply chains and monetary policy. Now, if you're anything like me before I came here, you might think of economics as something that is practised by banks rather than something that is researched like a science. There is the question, is economics a science? Which I asked the PhD students and these were their responses. The obvious answer is what is the science? That's not a helpful answer. Macroeconomics is, the macroeconomy isn't probably. Yes. Is that enough of an answer? No. So to give you some background on what a PhD in economics is like, what you research, I wanted to give these students a platform on my channel just to very briefly in this video talk about what their PhDs are about. So let's take the beginning of the financial crisis, the great recession in the US, UK, Europe. Suddenly unemployment goes from 5% to 10% and in a few months, maybe a year. Why does that happen? I thought this would be something that macroeconomists understood really well but one of the exciting things about the research idea is that we don't yet fully understand. My first chapter is about stock return prediction using flexible models. So that one is kind of like econometrics. So I study the mortgage interest deductibility which is a subsidy on mortgages and borrowing and I study what happens when that one, the subsidy is removed. On for example, what happens with house prices, what happens with the level of debt in the economy and ultimately our households better or worse off if the subsidy is removed. My second paper which I'm going to present here is like financial integration in the changing world. It's about like measuring financial integration and how to predict it and whether it increases or not over time. The basic question I'm trying to answer is the following. Standard models assume that if you want to produce a car, you just bring people in to produce a car. I would like this assumption to say if you need to produce a car, you need to produce tyres, you need to produce the metal from which the car is made, you need to produce the glass for the car as well and I'm trying to incorporate these features into macroeconomic models and I'm sure that incorporating that is very, very important for understanding manager policy. I think my research matters a lot for the average household. Purchasing a house is one of the probably the biggest financial decision or investment you make in your life. So how this mortgage market is set up, how much debt you can use to finance your mortgage or to finance your house purchase is important for most people. The question I want to answer is why does unemployment rise so far and so fast as recessions happen. And if we want to stop this sort of phenomena with enormous social consequences, we need to understand why it happens. And what I'm doing, what I'm looking at, sort of large online data sets, job postings with wages is helping to reach the root cause of why unemployment rises so much, which is something that we don't yet fully understand even in 2018. So there's your background. All these guys are studying very different projects and so they're going to have very different responses to the big question. The reason you're watching this video, how is the world going to change? It's something that's going to change the world economy. Oh, that's such an easy question. If I ever knew, that would be great. The media narrative is that artificial intelligence is super important, but in practice, we haven't yet measured it carefully enough to know for sure. And this is something I'm trying to do. Let me say two things. If you started with cryptocurrency, I think it's also a big thing. Why? Because we are moving from cryptocurrencies as Bitcoin and other similar cryptocurrencies to this whole conversation about cryptocurrency issued by a central bank. You know, 10 years ago, an investment professional would be extremely valuable, but today they might not be because you could train an algorithm to do many of the same tasks. This narrative is popular, but it's quite hard to test. So one of the things I'm doing is trying to get data that can let us test this. The second big topic is fiscal policy. Why? Because economists often talk about the monetary policy as being the science of our discipline. The fiscal policy is the alchemy. There's still a very limited understanding of how exactly action by the government either spending on goods and services or the government doing some taxation. How exactly? What is the optimal way of doing that? I think we shouldn't worry too much about this because just like 100 years ago we went through the industrialized reform. We also had machines replacing all the houses and technology is the key for economic growth. I'll be honest, I feel like I've left this conference with more questions than answers. It feels like very little is certain in economics. If anything, as a result of this trip I now think of economics more and more like climate science. There's this vastly complicated system in a model, you have different models for it and depending on the assumptions that go into those models you get really different outcomes. They're really quite similar fields. But not just that. Talking to the PhDs has really made it clear to me that we're more alike than we are different. We all have a lot in common. I mean it's been tough, a lot of work but it's also been fun and it's an amazing freedom to be able to do whatever you want to study exactly what you're interested in. It's really hard to be original especially just as a PhD student at the start and it's kind of impossible for you to come up with a totally new idea and you think you will change the whole world with this idea. That's because you hadn't really enough literature. Whenever they tell you, okay, the next time we'll check up on you is in about 18 months time. You suddenly get a lot of temptation to start doing very casual recreational thinking, pondering about macroeconomics and sort of producing results. Of course I hope that my PhD is social utility but I do it in some level most of all because I love doing it. And so I don't have to justify it to anyone because when people say why are you doing it? I say I do it because it's my passion. And in my experience I think to do and really get a lot out of a PhD you need to want to do it for the pure joy of it irrespective of how much it might improve the world because that's a very hard thing to do and it's a very lofty and perhaps unattainable goal for research. See, it's not just me. Thanks to the ECB for inviting me to come and make this video. I would encourage you to follow them on Twitter and to check out their website because before I came here I didn't know anything about the ECB, what it was or what it did and it is this really important institution for Europe and I think it's worth learning about. So go to those links, they'll be in the description but also come back next week because I'm going to be posting a vlog about my time here in Cintra and all the landscapes you've seen behind and that amazing palace down there. This has been the venue for the conference and I'm going to be doing this vlog about my couple of days here about meeting the students, about making this video and hopefully more than that getting answers to questions that you posted on social media about economics. I'm going to do my very best tomorrow to get answers to those. So make sure you subscribe to the channel so you don't miss that. If you enjoyed this video, make sure you give it a like and thank you very much for watching. I really hope you've learned something like I have in the process of making it. Thank you for watching and I'll see you in the next one.