Metastable Features of Economic Networks and Responses to Exogenous Shocks.

Abstract

It is well known that a network structure plays an important role in addressing a collective behavior. In this paper we study a network of firms and corporations for addressing metastable features in an Ising based model. In our model we observe that if in a recession the government imposes a demand shock to stimulate the network, metastable features shape its response. Actually we find that there exists a minimum bound where any demand shock with a size below it is unable to trigger the market out of recession. We then investigate the impact of network characteristics on this minimum bound. We surprisingly observe that in a Watts-Strogatz network, although the minimum bound depends on the average of the degrees, when translated into the language of economics, such a bound is independent of the average degrees. This bound is about 0.44ΔGDP, where ΔGDP is the gap of GDP between recession and expansion. We examine our suggestions for the cases of the United States and the European Union in the recent recession, and compare them with the imposed stimulations. While the stimulation in the US has been above our threshold, in the EU it has been far below our threshold. Beside providing a minimum bound for a successful stimulation, our study on the metastable features suggests that in the time of crisis there is a "golden time passage" in which the minimum bound for successful stimulation can be much lower. Hence, our study strongly suggests stimulations to arise within this time passage.