Global Markets – Model and Policies – Reference

Here is a reference on how network theory can be employed to assess the fragility of financial markets:



This paper develops a network model of interbank lending in which unsecured claims, repo activity and shocks to the haircuts applied to collateral assume centre stage. We show how systemic liquidity crises of the kind associated with the interbank market collapse of 2007–2008 can arise within such a framework, with funding contagion spreading widely through the web of interlinkages. Our model illustrates how greater complexity and concentration in the financial network may amplify this fragility. The analysis suggests how a range of policy measures – including tougher liquidity regulation, macro-prudential policy, and surcharges for systemically important financial institutions – could make the financial system more resilient.

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  1. A link to a paper on “The Paradigm Shift from Algorithms to Interaction”

    The paradigm shift from algorithms to interaction captures the technology shift from mainframes to workstations and networks, from number-crunching to embedded systems and graphical user interfaces, and from procedure-oriented to object-based and distributed programming. Interaction is shown to be more powerful than rule-based algorithms for computer problem solving, overturning the prevalent view that all computing is expressible as algorithms. The radical notion that interactive systems are more pow- erful problem-solving engines than algorithms is the basis for a new paradigm for computing technology built around the unifying concept of interaction.

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