Networks of Economic Market Interdependence and Systemic Risk
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New England Complex Systems Institute
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Phone: 617-547-4100 Fax: 617-661-7711
Report on arXiv.org
Reported in Wired Magazine
"Economists have pointed to financial industry entanglement with the entire U.S. economy as a crucial factor in the 2008 collapse, but Bar-Yam’s team drives the point home with new clarity."
What network science has to say about large universal banksThe financial crisis that began in 2008 crippled the whole economy. But why did a crisis in the financial sector have such devastating effects on other industries? According to a new paper from the New England Complex Systems Institute, increasing interdependence between finance and other sectors rendered the whole economy fragile. By modeling the network of relationships between companies in finance and other critical areas over time, the researchers were able to track mounting correlation among industries. As relationships tightened, vulnerability rose. The work deepens our understanding of how interdependence relates to systemic risk, and has the potential to inform future regulation.
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