Title: Exogenous Shocks, Network Structure and Systemic Risks: Experimental Evidence

Speaker: Chen Yefeng 

Personal Website: https://person.zju.edu.cn/chenyefeng

Host: Lei Zhen

Time: Dec 10, 2021 (Friday） 4:45pm - 6:15pm

Hybrid:

Room: 311 HongYuan Building

Link: https://meeting.tencent.com/dm/338h0Cs57fSn

Abstract：

The study of the systemic risks posed by exogenous shocks is critical for the smooth operation and development of Chinese economy. The most important thing is to understand how exogenous shocks are magnified by network structure to create systemic risks. The impact of different network structures on systemic risks under exogenous shocks is investigated using experimental methods in this paper. In this experiment, we create a debt network structure in the lab with an asset trading market. The subjects were placed in four exogenously provided debt network topologies and exposed to varying degrees of exogenous shock in distinct treatments. By comparing bankruptcy in various situations, we may see how different network structures affect systemic risks. We investigate the network structure roots of systemic risks from a macro perspective, while also discussing the emergency management behaviors of individuals from a micro perspective when confronted with shocks, based on experimental data. The main experimental findings revealed that, on a macro level, the best network structure must strike a balance between risk sharing and risk isolation. In general, cluster networks perform best and ring networks perform the worst. Second, participants experienced irrational behavior during exogenous shocks, which is an essential channel for various network architectures to amplify exogenous shocks and produce systemic risks. Third, we investigate the impact of various network structures on inequality in the face of exogenous shocks, and find that network structure affects social inequality by affecting systemic risks, implying that bankruptcy is the most important factor in determining the inequality, and reducing systemic risks is also the primary task of curbing the increase in inequality. The findings of this paper have contributed to a better understanding of the relationship between network structure and systemic risk, and they have significant implications for preventing systemic risk.