Two critical issues emerging from the recent financial crisis are the importance of systemic risk and links between the financial sector and the real economy. A firm is systemically important if it is highly connected with strong transmission channels to other firms. Using measures of risk shocks from firms in all sectors of the economy we develop a measure of systemic risk which captures both the interconnections and the changing strength of these relationships over time. We also incorporate potentially important firm characteristics, such as size and leverage. The outcome will be identification of systemically important financial institutions in Australia and the US based on their own markets. We will extend this to links between geographic regions to incorporate international linkages and identify the globally systemically important financial institutions which are relevant to the local economy.
At the CIFR Symposium (Systemic Risk)
8 August 2013:
"This is an interconnectedness type of measure: How much can we break down the connections between the financial sector and the real economy when it is in stress to protect the real economy.”
This project will substantially increase the operations and research outputs of the Laboratory, creating the leading research institution in Australia in the application of experimental economics to natural resources and the environment.
Experimental economics is an important and growing field in which the underlying principles of economics are explored under laboratory conditions. The aim of the research group is to evaluate the theory and application of economics to environmental and resource issues.