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The power to control

Nature Physics volume 9, pages 126–128 (2013)Cite this article

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Understanding something of the complexity of a financial network is one thing, influencing the behaviour of that system is another. But new tools from network science define a notion of 'controllability' that, coupled with 'centrality', could prove useful to economists and financial regulators.

The financial crisis that erupted in 2008 has made plain the shortcomings of old paradigms in economics and finance, and researchers have turned to other disciplines to seek fresh insight. Network science — thoroughly studied in mathematics and physics for decades — has thus made its way into economics, with financial institutions imagined as the nodes of a network, linked by financial flows, contracts or other interactions. Two main kinds of tool have been provided for the study of financial networks: the first is network statistics, which summarize global properties of a network in one (or few) numbers; the other, centrality measures1, provides a measure of 'importance' of individual nodes. Both have proved very useful for economists and policymakers, for a couple of reasons.

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Figure 1: TARGET2 represented as a 'bow-tie' diagram9.
Figure 2: Transactions of the Italian electronic interbank market e-MID.

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Acknowledgements

The authors acknowledge support from the European FET Open Project FOC 'Forecasting Financial Crises' (No. 255987) and from the Working Group on Networks and Systemic risk, part of the Institute for New Economic Thinking's Financial Stability Research Program.

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Authors and Affiliations

  1. Marco Galbiati* is at the Bank of England, Threadneedle Street, London EC2R 8AH, UK, and formerly an overseer of the TARGET2 system at the European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany,

    Marco Galbiati

  2. Danilo Delpini is in the Department of Economics and Business (DiSEA), University of Sassari, via Muroni 25, 07100 Sassari, Italy,

    Danilo Delpini

  3. Stefano Battiston is at ETH Zürich, 8092 Zurich, Switzerland,

    Stefano Battiston

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  1. Marco Galbiati
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  2. Danilo Delpini
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  3. Stefano Battiston
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Correspondence to Marco Galbiati.

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Galbiati, M., Delpini, D. & Battiston, S. The power to control. Nature Phys 9, 126–128 (2013). https://doi.org/10.1038/nphys2581

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