Financial institutions carry out various transactions with each other, including risk-sharing and insurance. The architecture of the network of transactions between institutions can support financial stability because it enables them to share funding or transfer risk. But these linkages can also facilitate the diffusion of shocks through the system, due to chains of default and the domino effect. This is referred to as systemic risk. Systemic risk is costly for individuals, institutions and economies, as demonstrated by the last financial crisis (of 2008). The obvious need for a stable financial system has led to a significant interest in policies that could reduce systemic risk and mitigate contagion.
by Adelina Gschwandtner, University of Kent; Cheul Jang, Korea Water; and Richard McManus, Canterbury Christ Church University. Discussion paper KDPE 1720, December 2017.
South Korea is a country with a historically polluted water supply. Water pollution has spread according to economic development worldwide. Increased discharges of untreated sewage combined with agricultural runoff and inadequately treated wastewater from industry, have resulted in the severe degradation of water quality all over the world; however, the situation appears to be especially worrying in South Korea. Several accidents of contamination in the water such as detection of trihalomethanes, heavy metal, harmful pesticides and disease germs in tap water, have made the average Korean concerned about the safety of the water supply, and very few citizens drink water directly from the tap.
by Alfred Duncan, University of Kent and Charles Nolan, University of Glasgow, discussion paper KDPE 1719, December 2017.
In recent decades, macroeconomic researchers have looked to incorporate financial intermediaries explicitly in business cycle models. These modelling developments have helped us to understand the role of the financial sector in the transmission of policy and external shocks into macroeconomic dynamics. They have also helped us to better understand the consequences of financial instability for the macroeconomy.
by Nizar Allouch, discussion paper KDPE 1718, December 2017.
Understanding, and making sense of, large economic networks is an increasingly important problem from an economic perspective, due to the ever-widening gap between technological advances in constructing such networks, and our ability to predict and estimate their properties. Throughout history, various concepts have been developed to reduce the inherent complexity found in large economic systems, thereby rendering them more amenable to economic analysis.