Wealth Inequality, Network Topology and Financial Instability

2021 ◽  
Author(s):  
Thomas Hauner
Keyword(s):  
Financial Stability ◽  
Random Network ◽  
Wealth Distribution ◽  
Wealth Inequality ◽  
Financial Assets ◽  
Financial Network ◽  
Random Shock ◽  
Income Shock ◽  
Network Simulations ◽  
Individual Asset

This paper asks if two, otherwise identical, economies were distinguished only by their distributions of wealth, are they equally stable in response to a random shock? A theoretical financial network model is proposed to understand the relationship between wealth inequality and financial crises. In a financial network, financial assets link individual asset and liability holders to form a web of economic connections. The total connectivity of an individual is described by their degree, and the overall distribution of connections in the network is imposed through a degree distribution--equivalent to the wealth distribution as incoming connections represent assets and outgoing connections liabilities. A network's topology varies with the level of wealth inequality and total wealth and together, simulations show, they determine network contagion in the event of a random negative income shock to some individual. Random network simulations, whereby each financial connection is randomly placed, reveal that increasing wealth inequality makes a wealthy network less stable--as measured by the share of individuals failing financially or the decline in financial asset values. These results suggest a unique architectural role for accumulated assets and their distribution in macro-financial stability.

scholarly journals The multiplex nature of global financial contagions

2020 ◽  
Vol 5 (1) ◽  
Author(s):  
R. Maria del Rio-Chanona ◽  
Yevgeniya Korniyenko ◽  
Manasa Patnam ◽  
Mason A. Porter
Keyword(s):  
Financial Distress ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Threshold Model ◽  
Financial Assets ◽  
Financial Network ◽  
Node Importance ◽  
Multiplex Network ◽  
Cross Country ◽  
Using Data

Abstract As illustrated by the 2008 global financial crisis, the financial distress of one country can trigger financial distress in other countries. We examine the problem of identifying such “systemically important” countries (i.e., countries whose financial distress can trigger further distress), which is important for assessing global financial stability. Using data on bilateral financial positions that are split by asset type, we build a multiplex global financial network in which nodes represent countries, edges encode cross-country financial assets of various types, and layers represent asset types. We examine the temporal evolution of a measure of node importance known as MultiRank centrality, and we find that several major European countries decrease in rank and that several major Asian countries increase in rank since 2008. We then develop a multiplex threshold model of financial contagions in which a shock can propagate either within a layer or between layers. We find that the number of systemically important countries can be twice as large when we take into account the heterogeneity of financial exposures (i.e., when using a multiplex network) than in a contagion on an associated aggregate global financial network (i.e., on a monolayer network), as is often examined in other studies. We also study the extent to which buffers can reduce the propagation of financial distress. Our analysis suggests that accounting for both intralayer and interlayer propagation of contagions in a multiplex structure of financial assets is important for understanding interconnected financial systems of countries.

scholarly journals Regular Econometric Model of Taylor for Albania

2016 ◽  
Vol 5 (1) ◽  
pp. 123
Author(s):  
Ergys Misha
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Interest Rates ◽  
Financial Stability ◽  
Inflation Targeting ◽  
Inflation Rate ◽  
Stock Exchange ◽  
Central Banks ◽  
Financial Assets

The Taylor’s Rule Central Banks is applying widely today from Central Banks for design the monetary policy and for determination of interest rates. The purpose of this paper is to assess monetary policy rule in Albania, in view of an inflation targeting regime. In the first version of the Model, the Taylor’s Rule assumes that base interest rate of the monetary policy varies depending on the change of (1) the inflation rate and (2) economic growth (Output Gap).Through this paper it is proposed changing the objective of the Bank of Albania by adding a new objective, that of "financial stability", along with the “price stability”. This means that it is necessary to reassess the Taylor’s Rule by modifying it with incorporation of indicators of financial stability. In the case of Albania, we consider that there is no regular market of financial assets in the absence of the Stock Exchange. For this reason, we will rely on the credit developmet - as a way to measure the financial cycle in the economy. In this case, the base rate of monetary policy will be changed throught: (1) Targeting Inflation Rate, (2) Nominal Targeting of Economic Growth, and (3) Targeting the Gap of the Ratio Credit/GDP (mitigating the boom cycle, if the gap is positive, and the contractiocycle if the gap is negative).The research data show that, it is necessary that the Bank of Albania should also include in its objective maintaining the financial stability. In this way, the contribution expected from the inclusion of credit gap indicators in Taylor’s Rule, will be higher and sustainable in time.

scholarly journals Wealth Disparities Before and After the Great Recession

2013 ◽  
Vol 650 (1) ◽  
pp. 98-123 ◽  
Author(s):  
Fabian T. Pfeffer ◽  
Sheldon Danziger ◽  
Robert F. Schoeni
Keyword(s):  
Great Recession ◽  
Wealth Distribution ◽  
Wealth Inequality ◽  
Longitudinal Analyses ◽  
Minority Status ◽  
Socioeconomic Groups ◽  
The Great Recession ◽  
Before And After ◽  
Substantial Rise ◽  
American Families

The collapse of the labor, housing, and stock markets beginning in 2007 created unprecedented challenges for American families. This study examines disparities in wealth holdings leading up to the Great Recession and during the first years of the recovery. All socioeconomic groups experienced declines in wealth following the recession, with higher wealth families experiencing larger absolute declines. In percentage terms, however, the declines were greater for less advantaged groups as measured by minority status, education, and prerecession income and wealth, leading to a substantial rise in wealth inequality in just a few years. Despite large changes in wealth, longitudinal analyses demonstrate little change in mobility in the ranking of particular families in the wealth distribution. Between 2007 and 2011, one-fourth of American families lost at least 75 percent of their wealth, and more than half of all families lost at least 25 percent of their wealth. Multivariate longitudinal analyses document that these large relative losses were disproportionally concentrated among lower-income, less educated, and minority households.

scholarly journals Some problems in Piketty: an internal critique

2019 ◽  
pp. 101-118
Author(s):  
Alan Tapper
Keyword(s):  
Income Inequality ◽  
Wealth Distribution ◽  
National Income ◽  
Wealth Inequality ◽  
First Century ◽  
The Other ◽  
Income Ratio ◽  
Twenty First Century ◽  
Distribution Trends

Thomas Piketty’s evidence on wealth distribution trends in Capital in the Twenty-First Century shows that – contra his own interpretation – there has been little rise in wealth inequality in Europe and America since the 1970s. This article relates that finding to the other principal trends in Piketty’s analysis: the capital/national income ratio trend, the capital-labor split of total incomes and the income inequality trend. Given that wealth inequality is not rising markedly, what can we deduce about the putative causes that might be operating upstream? Only the capital-labor split looks like a plausible explanation of the wealth inequality trend.

scholarly journals Some Major Causes of Current Economic Crises and Leadership Strategies

2010 ◽  
Author(s):  
Asım Şen
Keyword(s):  
Economic Growth ◽  
Wealth Distribution ◽  
Economic Inequality ◽  
Wealth Inequality ◽  
Shared Vision ◽  
Leadership Strategies ◽  
Economic Crises ◽  
The People ◽  
Education And Employment ◽  
Sustainable Economic Growth

This paper argues that economic inequality is one of the major causes of the current economic crises and provides some appropriate leadership strategies for solving them. Inequality is defined as unequal opportunities for economical activities among the people of a nation and among the nations of the world. The major cause of most current economic crises is the income and wealth inequality which are generated mainly by the economic growth. Leaders in the past and currently could not utilize appropriate strategies to solve the inequality problems and consequently the economic crisis grew and reached the current levels. In order to solve the current economic crises it is necessary to eliminate the economic inequality problems and establish fair and sustainable economic growth. The leadership strategies play crucial role for this process. These strategies included in this paper are establishing the local and global shared vision for all; balancing the income and wealth distribution; providing the equal opportunities for education and employment; sharing the production and consumption; and maintaining the fair and sustainable globalization and economic growth.

scholarly journals How strategy environment and wealth shape altruistic behaviour: Cooperation rules affecting wealth distribution in dynamic networks

2020 ◽  
Author(s):  
Spandan Pathak ◽  
Prateek Verma ◽  
Sumit K. Ram ◽  
Supratim Sengupta
Keyword(s):  
Social Ties ◽  
Environmental Influence ◽  
Wealth Distribution ◽  
Dynamic Networks ◽  
Wealth Inequality ◽  
Cooperative Behaviour ◽  
Local Strategy ◽  
Individual Contributions ◽  
Past Experiences ◽  
Decision Making Model

AbstractSocieties rely on individual contributions to sustain public goods that benefit the entire community. Several mechanisms, that specify how individuals change their decisions based on past experiences, have been proposed to explain how altruists are not outcompeted by selfish counterparts. A key aspect of such strategy updates involves a comparison of an individual’s latest payoff with that of a random neighbour. In reality, both the economic and social milieu often shapes cooperative behaviour. We propose a new decision heuristic, where the propensity of an individual to cooperate depends on the local strategy environment in which she is embedded as well as her wealth relative to that of her neighbours. Our decision-making model allows cooperation to be sustained and also explains the results of recent experiments on social dilemmas in dynamic networks. Final cooperation levels depend only on the extent to which the strategy environment influences altruistic behaviour but are largely unaffected by network restructuring. However, the extent of wealth inequality in the community is affected by a subtle interplay between the environmental influence on a person’s decision to contribute and the likelihood of reshaping social ties, with wealth-inequality levels rising with increasing likelihood of network restructuring in some situations.

Economic Growth, Wealth and Wealth Inequality in Asia before, during and after the Global Financial Crisis

2019 ◽  
Vol 47 (4-5) ◽  
pp. 459-483
Author(s):  
Jenny Chesters
Keyword(s):  
Economic Growth ◽  
Hong Kong ◽  
East Asia ◽  
Global Financial Crisis ◽  
Wealth Distribution ◽  
Wealth Inequality ◽  
Living Standards ◽  
Rapid Expansion ◽  
The World Bank ◽  
The Global Financial Crisis

Abstract Although economic growth is regarded as an indicator of the success of an economy and, therefore, an indicator of rising living standards, there is no guarantee that living standards will improve for all members of society unless the benefits derived from economic growth are shared equally. If the wealth generated by economic growth accrues to those at the top of the wealth distribution, levels of inequality will increase. In this paper, I use publicly available data from the World Bank, Credit Suisse, and Forbes Magazine for 11 countries in East Asia/ South East Asia: Cambodia, China, Hong Kong, Japan, Laos, Malaysia, Singapore, South Korea, Taiwan, Thailand, and Vietnam, to examine whether increases in GDP/capita were accompanied by increases in wealth/adult and levels of wealth inequality between 2000 and 2016. In China, Hong Kong, and Vietnam, wealth inequality increased substantially despite, or perhaps due to, the rapid expansion of their economies. In other words, it would appear that the rising tide lifted some boats but swamped others.

scholarly journals Achieving Portfolio Diversification for Individuals with Low Financial Sustainability

2020 ◽  
Vol 12 (17) ◽  
pp. 7073
Author(s):  
Yongjae Lee ◽  
Woo Chang Kim ◽  
Jang Ho Kim
Keyword(s):  
Financial Stability ◽  
Portfolio Diversification ◽  
Financial Sustainability ◽  
Individual Investors ◽  
Financial Assets ◽  
Portfolio Returns ◽  
Investment Size ◽  
Mean Variance Portfolio ◽  
The Relationship ◽  
Mean Variance

While many individuals make investments to gain financial stability, most individual investors hold under-diversified portfolios that consist of only a few financial assets. Lack of diversification is alarming especially for average individuals because it may result in massive drawdowns in their portfolio returns. In this study, we analyze if it is theoretically feasible to construct fully risk-diversified portfolios even for the small accounts of not-so-rich individuals. In this regard, we formulate an investment size constrained mean-variance portfolio selection problem and investigate the relationship between the investment amount and diversification effect.

Inequality in the minimal group paradigm: How relative wealth and its justification influence ingroup bias

2020 ◽  
Author(s):  
Paul Robert Connor ◽  
Daniel Stancato ◽  
Ugur Yildirim ◽  
Serena CHEN
Keyword(s):  
Wealth Distribution ◽  
Wealth Inequality ◽  
Ingroup Bias ◽  
Causal Factors ◽  
Minimal Group Paradigm ◽  
Financial Decision Making ◽  
Minimal Group ◽  
Financial Decision ◽  
Moderating Role

This article details a registered report for a well-powered (N = 1500) experiment examining the influence of wealth inequality between groups on ingroup bias, as well as the potential moderating role of justification for the wealth distribution. Using the Minimal Group Paradigm, in which participants are assigned to groups with anonymous others and asked to allocate resources to ingroup or outgroup members, we randomly assigned participants to a relatively disadvantaged or a relatively advantaged group. Group assignments were ostensibly based on chance (weak justification), performance on a financial decision-making task (strong justification), or an ambiguous combination of the two (ambiguous justification). As expected, we found evidence for an inequity aversion hypothesis, with disadvantaged participants displaying heightened ingroup bias compared to their advantaged counterparts. Interestingly, however, our predictions regarding the moderating role of justification were not supported, with disadvantaged participants displaying the highest ingroup bias when the inequality was ambiguously justified. We discuss implications of these results for understanding the causal factors underlying ingroup bias.

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