The 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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