The European Central Bank (ECB) has recognized that the tools currently at disposal of policy makers to monitor financial systems are insufficient to cope with systemic risk. The main problem with the current monitoring systems is that they are based on the idea that micro and macro behavior coincide because the representative agent framework does not analyze feedbacks on non-anonymous interactions among agents. Applying complexity science to the investigation of financial networks allows for overcoming the current inadequacy and helps in understanding how crises might emerge from the interaction of heterogeneous agents. This project performs empirical investigations and devises a model where heterogeneity and networks affect the robustness and resilience properties of the system.
New Tools in the Credit Network Modeling with Agents' Heterogeneity
This research project captures systemic risk of the credit market by combining information about the level of fragility of individual economic entities with the network structure of their mutual credit exposures.