Clearing algorithms and network centrality

I show that the solution of a standard clearing model commonly used in contagion analyses for financial systems can be expressed as a specific form of a generalized Katz centrality measure under conditions that correspond to a system-wide shock. This result provides a formal explanation for earlier empirical results which showed that Katz-type centrality measures are closely related to contagiousness. It also allows assessing the assumptions that one is making when using such centrality measures as systemic risk indicators. I conclude that these assumptions should be considered too strong and that, from a theoretical perspective, clearing models should be given preference over centrality measures in systemic risk analyses

Warfare, Fiscal Capacity, and Performance

We exploit differences in casualties sustained in pre-modern wars to estimate the impact of fiscal capacity on economic performance. In the past, states fought different amounts of external conflicts, of various lengths and magnitudes. To raise the revenues to wage wars, states made fiscal innovations, which persisted and helped to shape current fiscal institutions. Economic historians claim that greater fiscal capacity was the key long-run institutional change brought about by historical conflicts. Using casualties sustained in pre-modern wars to instrument for current fiscal institutions, we estimate substantial impacts of fiscal capacity on GDP per worker. The results are robust to a broad range of specifications, controls, and sub-samples

Systemic risk and macroeconomic fat tails

We propose a mechanism for shock amplification that potentially can account for fat tails in the distribution of the growth rate of national output. We argue that extreme macroeconomic events, such as the Great Depression and the Great Recession, were preceded by significant turmoil in the banking system. We have developed a model of bank network formation and presented numerical simulations that show that, for the benchmark case, aggregate credit follows a random walk. When we introduce fire sales the model does not only produce larger variations in the growth of aggregate credit but also shows that there is an asymmetry between booms and busts that is also consistent with empirical evidence

Performing public credit at the eighteenth-century Bank of England

Much is known about the negotiation of personal credit relationships during the eighteenth century. It has been noted how direct contact and observation allowed individuals to assess the creditworthiness of those with whom they had financial connections and to whom they might lend money. Much less is known about one of the most important credit relationships of the long eighteenth century: that between the state and its creditors. This article shows that investors could experience the performance of public credit at the Bank of England. By 1760 the Bank was the manager of nearly three-quarters of the state's debt and housed the main secondary market in that debt. Thus, it provided a place for public creditors, both current and potential, to attend and scrutinize the performance of the state's promises. The article demonstrates how the Bank acted to embody public credit through its architecture, internal structures, and imagery and through the very visible actions of its clerks and the technologies that they used to record ownership and transfer of the national debt. The Bank of England, by those means, allowed creditors to interrogate the financial stability and reputation of the state in the same ways that they could interrogate the integrity of a private debtor.Peer reviewedFinal Accepted Versio

On the new economic philosophy of crisis management in the European Union

This essay attempts to go beyond presenting the bits and pieces of still ongoing crisis management in the EU. Instead it attempts at finding the ‘red thread’ behind a series of politically improvised decisions. Our fundamental research question asks whether basic economic lessons learned in the 1970s are still valid. Namely, that a crises emanating from either structural or regulatory weaknesses cannot and should not be remedied by demand management. Our second research question is the following: Can lacking internal commitment and conviction in any member state be replaced or substituted by external pressure or formalized procedures and sanctions? Under those angles we analyze the project on establishing a fiscal and banking union in the EU, as approved by the Council in December 2012

Introduction

This collected volume gives a concise account of the most relevant scientific results of the COST Action IS1104 "The EU in the new complex geography of economic systems: models, tools and policy evaluation", a four-year project supported by COST (European Cooperation in Science and Technology). It is divided into three parts reflecting the different perspectives under which complex spatial economic systems have been studied: (i) the Macro perspective looks at the interactions among international or regional trading partners; (ii) the Meso perspective considers the functioning of (financial, labour) markets as social network structures; and, finally, (iii) the Micro perspective focuses on the strategic choices of single firms and households. This Volume points also at open issues to be addressed in future research

Are there asymmetries in the effects of training on the conditional male wage distribution?

Recent studies have used quantile regression (QR) techniques to estimate the impact of education on the location, scale and shape of the conditional wage distribution. In our paper we investigate the degree to which work-related training – another important form of human capital – affects the location, scale and shape of the conditional wage distribution. Using the first six waves of the European Community Household Panel, we utilise both ordinary least squares and QR techniques to estimate associations between work-related training and wages for private sector men in ten European Union countries. Our results show that, for the majority of countries, there is a fairly uniform association between training and hourly wages across the conditional wage distribution. However, there are considerable differences across countries in mean associations between training and wages

Network segregation in a model of misinformation and fact checking

Misinformation under the form of rumor, hoaxes, and conspiracy theories spreads on social media at alarming rates. One hypothesis is that, since social media are shaped by homophily, belief in misinformation may be more likely to thrive on those social circles that are segregated from the rest of the network. One possible antidote is fact checking which, in some cases, is known to stop rumors from spreading further. However, fact checking may also backfire and reinforce the belief in a hoax. Here we take into account the combination of network segregation, finite memory and attention, and fact-checking efforts. We consider a compartmental model of two interacting epidemic processes over a network that is segregated between gullible and skeptic users. Extensive simulation and mean-field analysis show that a more segregated network facilitates the spread of a hoax only at low forgetting rates, but has no effect when agents forget at faster rates. This finding may inform the development of mitigation techniques and overall inform on the risks of uncontrolled misinformation online