13-14 Sept 2016 Invited Speaker at Financial Risk and Network Theory Workshop
Calum 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.
This talk was also given at the University of Manchester Conference on Networks In Finance
organized by Adam Leaver on 7-8 December 2016.