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Networks of Economic Market Interdependence and Systemic Risk

Author

Listed:
  • Dion Harmon
  • Blake Stacey
  • Yavni Bar-Yam
  • Yaneer Bar-Yam

Abstract

The dynamic network of relationships among corporations underlies cascading economic failures including the current economic crisis, and can be inferred from correlations in market value fluctuations. We analyze the time dependence of the network of correlations to reveal the changing relationships among the financial, technology, and basic materials sectors with rising and falling markets and resource constraints. The financial sector links otherwise weakly coupled economic sectors, particularly during economic declines. Such links increase economic risk and the extent of cascading failures. Our results suggest that firewalls between financial services for different sectors would reduce systemic risk without hampering economic growth.

Suggested Citation

  • Dion Harmon & Blake Stacey & Yavni Bar-Yam & Yaneer Bar-Yam, 2010. "Networks of Economic Market Interdependence and Systemic Risk," Papers 1011.3707, arXiv.org, revised Nov 2010.
  • Handle: RePEc:arx:papers:1011.3707
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    Cited by:

    1. Aymeric ViƩ & Alfredo J. Morales, 2021. "How Connected is Too Connected? Impact of Network Topology on Systemic Risk and Collapse of Complex Economic Systems," Computational Economics, Springer;Society for Computational Economics, vol. 57(4), pages 1327-1351, April.
    2. Kyrtsou, Catherine & Mikropoulou, Christina & Papana, Angeliki, 2016. "Does the S&P500 index lead the crude oil dynamics? A complexity-based approach," Energy Economics, Elsevier, vol. 56(C), pages 239-246.
    3. Trapp, Monika & Wewel, Claudio, 2013. "Transatlantic systemic risk," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4241-4255.
    4. Aymeric Vi'e & Alfredo J. Morales, 2019. "How connected is too connected? Impact of network topology on systemic risk and collapse of complex economic systems," Papers 1912.09814, arXiv.org.

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