Understanding our increasingly interconnected world requires tools from the rapidly growing field of network science. This column discusses guiding principles that are emerging from that science and helping to understand human behaviour – ranging from disease propagation and financial contagion to criminal behaviour.
Matthew O. Jackson, Brian Rogers, Yves Zenou, 06 March 2015
Brent Glover, Seth Richards-Shubik, 12 November 2014
Understanding the probability and magnitude of financial contagion is essential for policymaking. This column applies a framework for modelling financial contagion to data on the cross-holding and credit risk of sovereign debt in Europe. Credit markets perceived little risk of contagion from these spillovers following a sovereign default. It is important for policy to assess other possible channels for contagion that could generate even bigger losses.
Ashoka Mody, 07 January 2014
On 19 October 2010, Angela Merkel and Nicolas Sarkozy agreed that in future, sovereign bailouts from the European Stability Mechanism would require that losses be imposed on private creditors. This agreement was blamed for the increase in sovereign spreads in late 2010 and early 2011. This column discusses recent research on the market reaction to the surprise announcement at Deauville. With the exception of Greece, the rise in spreads was within the range of variability established in the previous 20 days.