Document Type
Article
Publication Date
1-1-2014
Journal / Book Title
Quantitative Finance
Abstract
We build a multi-agent dynamical system for the global economy to investigate and analyse financial crises. The agents are large aggregates of a subeconomy, and the global economy is a collection of subeconomies. We use well-known theories of dynamical systems to represent a financial crisis as propagation of a negative shock on wealth due the breakage of a financial equilibrium. We first extend the framework of the market instability indicator, an early warning signal defined for a single economy as the spectral radius of the Jacobian matrix of the wealth dynamical system. Then, we formulate a quantitative definition of instability contagion in terms thereof. Finally, we analyse the mechanism of instability contagion for both single and multiple economies. Our contribution is to provide a methodology to quantify and monitor the level of instability in sectors and stages of a structured global economic model and how it may propagate through its components.
DOI
10.1080/14697688.2014.890737
MSU Digital Commons Citation
Castellacci, Giuseppe and Choi, Youngna, "Financial Instability Contagion: A Dynamical Systems Approach" (2014). Department of Applied Mathematics and Statistics Faculty Scholarship and Creative Works. 61.
https://digitalcommons.montclair.edu/appliedmath-stats-facpubs/61
Published Citation
Castellacci, G., & Choi, Y. (2014). Financial instability contagion: a dynamical systems approach. Quantitative Finance, 14(7), 1243-1255.
