The financial crisis raises questions about the role science can play in the analysis of policy. Here we show that crashes are related to panic, characterize the network of economic interdependence and analyze market regulations.

 

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Economic Dynamics

NECSI has begun a detailed analysis of the dynamic flow of money in the U.S. economy. Our model can begin to guide monetary and fiscal policy towards sustained economic growth.

Yaneer Bar-Yam, The dynamics of financial flows and their significance for development, NECSI (June 11, 2018).

Yaneer Bar-Yam, Jean Langlois-Meurinne, Mari Kawakatsu, and Rodolfo Garcia, Preliminary steps toward a universal economic dynamics for monetary and fiscal policyarXiv:1710.06285 (October 10, 2017; Updated December 29, 2017).

Yaneer Bar-Yam, Steering the economy toward growth, NECSI (November 7, 2017).

Yaneer Bar-Yam, Accelerating economic growth and opportunity, NECSI (November 24, 2017).

Alan L. Feld, Yaneer Bar-Yam, What should tax policy be for economic growth?, NECSI (December 1, 2017).


Food and Commodity Markets

NECSI analysis reveals two main forces driving the global food price upward: ethanol conversion and speculation. This work has direct and immediate policy implications.

Dominic K. Albino, Casey Friedman, Yaneer Bar-Yam, Fuel policy wreaks global havoc, Boston Herald (August 3, 2013).

Dominic K. Albino, Karla Z. Bertrand, Yaneer Bar-Yam, Food for fuel: The price of ethanolarXiv:1210.6080 (October 4, 2012).

Karla Z. Bertrand, Greg Lindsay, Yaneer Bar-Yam, Food briefing, NECSI Report 2012-08-02 (August 24, 2012).

Marco Lagi, Yavni Bar-Yam, and Yaneer Bar-Yam, UPDATE July 2012 — The food crises: The US droughtarXiv: 1209.6376 (July 23, 2012).

Marco Lagi, Alexander S. Gard-Murray, and Yaneer Bar-Yam, Impact of ethanol conversion and speculation on Mexico corn imports, NECSI (May 2012).

Marco Lagi, Yavni Bar-Yam, Karla Z. Bertrand, Yaneer Bar-Yam, UPDATE February 2012 — The food crises: Predictive validation of a quantitative model of food prices including speculators and ethanol conversion, arXiv:1203.1313 (March 6, 2012).

Marco Lagi, Yavni Bar-Yam, Karla Z. Bertrand, Yaneer Bar-Yam, The Food Crises: A Quantitative Model of Food Prices Including Speculators and Ethanol Conversion, arXiv:1109.4859 (September 21, 2011).

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Debt & Crisis

NECSI analysis shows that while the debt crisis is real, market overreactions made it much worse by driving interest rates higher at a critical time, leading policy-makers to over-react. By quantifying the stability and vulnerability of the market, this work lays the foundation for making informed decisions about when the government should and shouldn't intervene.

Marco Lagi and Yaneer Bar-Yam, The European debt crisis: Defaults and market equilibrium, arXiv: 1209.6369 (September 27, 2012).

Chris Foote, Jeff Fuhrer, Eileen Mauskopf, and Paul S. Willen, A proposal to help distressed homeowners: A government payment-sharing plan, Public Policy Briefs (Federal Reserve Bank of Boston, July 9, 2009).


Predicting Economic Crashes by Characterizing Panic

NECSI analysis reveals that it is the internal structure of the market, not external news, which can cause a market to crash. The model which describes panic in the market successfully predicted observed market crashes.

Dion Harmon, Marco Lagi, Marcus A.M. de Aguiar, David D. Chinellato, Dan Braha, Irving Epstein, Yaneer Bar-Yam, Anticipating economic market crises using measures of collective panic, PLoS ONE 10(7): e0131871 (July 2015).

Vedant Misra and Yaneer Bar-Yam, Market Instability: Why flash crashes happenNECSI Report #2011-08-02 (August 2, 2011).

Brandon Keim, Possible early warning sign for market crashes, Wired (March 18, 2011).

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Financial Market Manipulation

NECSI analysis provides direct evidence for illegal market manipulation in the stock market, including in the lead up to the financial crisis.

Yavni Bar-Yam, Marcus A.M. de Aguiar, and Yaneer Bar-Yam, The $500 AAPL close: Manipulation or hedging? A quantitative analysis, arXiv:1402.0910 (September 3, 2013).

Vedant Misra, Marco Lagi, Yaneer Bar-Yam, Evidence of market manipulation in the financial crisis, arXiv:1112.3095, (December 13, 2011, Addendum: January 4, 2012).


Economic Interdependence

As various formerly disparate sectors of the economy become interlinked, instead of absorbing shocks, the system begins to propagate them, creating systemic risk.

Blake C. Stacey, Yaneer Bar-Yam, The stock market has grown unstable since February 2018arXiv:1806.00529 (June 1, 2018).

Dan Braha, Blake Stacey, and Yaneer Bar-Yam, Corporate competition: A self-organizing network, Social Networks 33(3): 219-230 (July 2011).

Dion Harmon, Blake Stacey, Yavni Bar-Yam, and Yaneer Bar-Yam, Networks of Economic Market Interdependence and Systemic Risk, arXiv:1011.3707v2 (November 16, 2010).

Brandon Keim, Analysis of 2008 collapse shows economy networked for failure, Wired (November 18, 2010).

Yaneer Bar-Yam, Market failure: Interdependence in action, NECSI (October 3, 2008).

Yaneer Bar-Yam, A regulatory system for the financial sector of complex systems science, Remarks prepared for Congressman Capuano's Roundtable (March 16, 2009). Congressman Capuano's Response.

Shankar Vedantam, The computer as a road map to unknowable territory, Washington Post (February 16, 2009).

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Uptick Rule

The uptick rule was designed to limit the rapid selling of borrowed shares and was implemented after the crash of 1929 to prevent future crashes. After it was repealed in the summer of 2007 due to unsound interpretations of data, the market was left more vulnerable to spikes and drops. At NECSI recommendation, the SEC announced a return of the rule, which caused an immediate market response. However, the rule has been reinstated only in a limited form, leaving the market vulnerable.

Press Release on the Uptick Rule (November 18, 2008).

Robert C. Pozen and Yaneer Bar-Yam, There's a better way to prevent ‘bear raids,' Wall Street Journal (November 18, 2008).

Analysis shows uptick rule vital to market stability, NECSI (November 18, 2008).

Yaneer Bar-Yam, Dion Harmon, Vedant Misra, and Joe Ornstein, Regulation of short selling: The Uptick Rule and market stability, Report presented at the Securities and Exchange Commission (February 22, 2010).

Dion Harmon and Yaneer Bar-Yam, Technical report on SEC Uptick Rule proposals, New England Complex Systems Institute Report 2009-04 (April, 2009).

Dion Harmon and Yaneer Bar-Yam, Technical report on the SEC Uptick repeal pilot, NECSI Technical Report 2008-11 (November 18, 2008).

Yaneer Bar-Yam and Dion Harmon, Flash crash: NECSI responds to the SEC market circuit breaker rules, NECSI (May 18, 2010).