Masked instability

Within-sector financial risk in the presence of wealth inequality

Research output: Contribution to journalArticleResearchpeer-review

1 Citation (Scopus)

Abstract

We investigate masked financial instability caused by wealth inequality. When an economic sector is decomposed into two subsectors that possess a severe wealth inequality, the sector in entirety can look financially stable while the two subsectors possess extreme financially instabilities of opposite nature, one from excessive equity, the other from lack thereof. The unstable subsector can result in further financial distress and even trigger a financial crisis. The market instability indicator, an early warning system derived from dynamical systems applied to agent-based models, is used to analyze the subsectoral financial instabilities. Detailed mathematical analysis is provided to explain what financial instabilities can arise amid seemingly stable economy and positive market data. The theoretical conjecture is verified by historical macroeconomic time series of the United States households among whom a substantial wealth inequality has been officially confirmed.

Original languageEnglish
Article number65
JournalRisks
Volume6
Issue number3
DOIs
StatePublished - 1 Sep 2018

Fingerprint

Financial risk
Financial instability
Wealth inequality
Macroeconomics
Financial distress
Agent-based model
Household
Nature
Early warning system
Financial crisis
Dynamical systems
Economic sectors
Equity
Mathematical analysis
Market data
Trigger

Keywords

  • Agent-based model
  • Dynamical systems
  • Financial stability
  • Wealth inequality

Cite this

@article{5e7f35b848654866acbed47b0f14b36c,
title = "Masked instability: Within-sector financial risk in the presence of wealth inequality",
abstract = "We investigate masked financial instability caused by wealth inequality. When an economic sector is decomposed into two subsectors that possess a severe wealth inequality, the sector in entirety can look financially stable while the two subsectors possess extreme financially instabilities of opposite nature, one from excessive equity, the other from lack thereof. The unstable subsector can result in further financial distress and even trigger a financial crisis. The market instability indicator, an early warning system derived from dynamical systems applied to agent-based models, is used to analyze the subsectoral financial instabilities. Detailed mathematical analysis is provided to explain what financial instabilities can arise amid seemingly stable economy and positive market data. The theoretical conjecture is verified by historical macroeconomic time series of the United States households among whom a substantial wealth inequality has been officially confirmed.",
keywords = "Agent-based model, Dynamical systems, Financial stability, Wealth inequality",
author = "Youngna Choi",
year = "2018",
month = "9",
day = "1",
doi = "10.3390/risks6030065",
language = "English",
volume = "6",
journal = "Risks",
issn = "2227-9091",
publisher = "MDPI AG",
number = "3",

}

Masked instability : Within-sector financial risk in the presence of wealth inequality. / Choi, Youngna.

In: Risks, Vol. 6, No. 3, 65, 01.09.2018.

Research output: Contribution to journalArticleResearchpeer-review

TY - JOUR

T1 - Masked instability

T2 - Within-sector financial risk in the presence of wealth inequality

AU - Choi, Youngna

PY - 2018/9/1

Y1 - 2018/9/1

N2 - We investigate masked financial instability caused by wealth inequality. When an economic sector is decomposed into two subsectors that possess a severe wealth inequality, the sector in entirety can look financially stable while the two subsectors possess extreme financially instabilities of opposite nature, one from excessive equity, the other from lack thereof. The unstable subsector can result in further financial distress and even trigger a financial crisis. The market instability indicator, an early warning system derived from dynamical systems applied to agent-based models, is used to analyze the subsectoral financial instabilities. Detailed mathematical analysis is provided to explain what financial instabilities can arise amid seemingly stable economy and positive market data. The theoretical conjecture is verified by historical macroeconomic time series of the United States households among whom a substantial wealth inequality has been officially confirmed.

AB - We investigate masked financial instability caused by wealth inequality. When an economic sector is decomposed into two subsectors that possess a severe wealth inequality, the sector in entirety can look financially stable while the two subsectors possess extreme financially instabilities of opposite nature, one from excessive equity, the other from lack thereof. The unstable subsector can result in further financial distress and even trigger a financial crisis. The market instability indicator, an early warning system derived from dynamical systems applied to agent-based models, is used to analyze the subsectoral financial instabilities. Detailed mathematical analysis is provided to explain what financial instabilities can arise amid seemingly stable economy and positive market data. The theoretical conjecture is verified by historical macroeconomic time series of the United States households among whom a substantial wealth inequality has been officially confirmed.

KW - Agent-based model

KW - Dynamical systems

KW - Financial stability

KW - Wealth inequality

UR - http://www.scopus.com/inward/record.url?scp=85056746364&partnerID=8YFLogxK

U2 - 10.3390/risks6030065

DO - 10.3390/risks6030065

M3 - Article

VL - 6

JO - Risks

JF - Risks

SN - 2227-9091

IS - 3

M1 - 65

ER -