Shock Propagation and Regulation of Interacting Economic Networks

March 13, 2017

First year PhD student András Borsos shared an early version of his thesis proposal, titled “Shock propagation and regulation of interacting economic networks”. András argued effectively that though much progress has been made on understanding contagion risks in individual sectors, models in the literature often neglect the complex interactions between different layers of the economy.

For example, credit relationships in the banking sector and supply chains of industrial sectors both form complex networks vulnerable to contagion risk in their own right - the failure of a single bank or firm can drag down all the rest. Yet there are clear links between these two networks - firms borrow from banks. András suggests that these links are worth studying as an extra dimension of potential contagion in the macroeconomy, as the spread of shocks across layers amplifies their effects. He plans to test this idea by using agent-based models, hoping both to better understand the economy, and to be able to say something about which regulations can better shield us from these risks.

Written by Johannes Wachs