New IMF paper on global systemic linkages
"Increased cross-border financial linkages promote risk diversification at the individual country level, reducing exposure to localized shocks. However, increased interconnectedness, by facilitating transmission of shocks, also generates a network externality that makes the global financial network more prone to systemic risk—the risk that shocks to a ―core‖ node leads to a breakdown of the entire network. Moreover, as the extent and complexity of cross-border financial linkages grow, investor information about specific exposures becomes less certain, amplifying systemic risks from panic responses to shocks."Information is incomplete, of course.
"This data has some well-known limitations (Lane and Milesi-Ferretti, 2008, and Milesi-Ferretti and others 2010). First, not all the economies participate in the survey, including some that are likely substantial holders of external assets (these include some oil-exporting economies with large sovereign wealth funds, offshore centers, and economies with large holdings of official reserves or portfolio assets, such as China and Taiwan."And where are the key nodes through which these shocks are transmitted? This paper doesn't characterise the shock transmitters the way that we would. But another IMF paper does.
Step forward, the tax havens.