13-14 Sept 2016  Invited Speaker at Financial Risk and Network Theory Workshop

Centre for Risk Studies and FNA, Judge Business School, Cambridge Sheri presents new work (with Inacio Manjama and Qi Zhang) on why granular global macro-net models are needed :

Unsustainable Global Macroeconomic Trends : New Granular Macro-net Models for Macroeconomics and Macro Prudential Policy

The talk identifies 3 major sources of economic malaise and unsustainable trends, which, if not addressed in the medium term can derail OECD economies for the foreseeable future.

Firstly, the longstanding offshoring of supply chains in leading OECD countries has made the domestic production networks to become fragile and suffer loss of connectivity with growing holes. Sheri  compares this to a diseased brain with Alzheimer’s that loses functionality. There is also reduced capacity of domestic systems to sustain wage growth in many sectors.

Secondly, financialization which has increased the size of the financial sector and the
arrogation of a very large percentage of corporate surpluses (over 60% in the US ) underscores the paucity of real investment in these economies and also the growing income inequality.  Using the Ghosh inverse function, we show the GDP loss from increasing financial sector share of gross operating profits in the US will be 6 times more in 2011 than in 1997.

Thirdly, QE which was ushered in as a fire fighting exercise has become a semi-permanent fixture with the close to zero or negative interest  rate regimes unleashing a ‘money- go- round’ series  of carry  trades and asset bubbles which exacerbate the unstable trends that are already endemic. We apply the network based granular macroeconomics of Acemoglu-Carvalho-Gabaix, as well as the Markose et. al. macro-net approach to identify the disproportionate size of economic actors/sectors such as the financial sector as being the major cause of  extreme GDP volatility and macro-prudential instability. See talk at
http://www.jbs.cam.ac.uk/faculty-research/centres/risk/news-events/events/2016/financial-risk-network-theory/#item-3

This  talk was also given at the University of Manchester Conference on Networks In Finance
organized by Adam Leaver on 7-8 December 2016.