Wealth Inequality, Network Topology and Financial InstabilityJournal of Income Distribution (2021) doi:10.25071/1874-6322.40445 link

Abstract:This article asks ’if two otherwise identical economies were distinguishedonly by their distributions of wealth, are they equally stable in response toa random shock?’ A theoretical financial network model is proposed tounderstand the relationship between wealth inequality and financial crises.In a financial network, financial assets link individual asset and liabilityholders to form a web of economic connections. The total connectivity of anindividual is described bydegree; the overall distribution of connections inthe network is imposed through adegree distribution– equivalent to thewealth distribution – as incoming connections represent assets and outgoingconnections, liabilities. A network’s topology varies with the level of wealthinequality and total wealth and simulations show that together, theydetermine network contagion in the event of a random negative incomeshock to some individuals. Random network simulations, whereby eachfinancial connection is randomly placed, reveal that increasing wealthinequality makes a wealthy network less stable – as measured by the shareof individuals failing financially or the decline in financial asset values.These results suggest a unique architectural role for accumulated assets andtheir distribution in macro-financial stability.


Aggregate Wealth and Its Distribution as Determinants of Financial Crises. Journal of Economic Inequality (2020) 18(3), 319-338. doi:10.1007/s10888-020-09444-9 link

Abstract: This paper investigates the relationship between wealth inequality and financial crises. While substantiation of a role for income inequality remains ambiguous in the literature, evidence is presented suggesting a positive relationship between the interaction of wealth inequality with aggregate wealth on systemic financial crises. The evidence is based on panel data for nine countries, some of which expand into the last century, and a linear probability model estimated with country and year fixed effects. The relationship is consistent when accounting for overall financial sector size, credit growth, the money supply, current account, asset bubbles, and robust to estimation method. No significant role is found for income inequality. Predicted probabilities of financial crisis closely track the incidence of financial crises over the last century, remarkably so when compared against a leading benchmark model. It is argued that the empirical relationship between wealth inequality, aggregate wealth and financial crises reveals an important role for the distribution of accumulated assets in the macro-financial stability of rich countries. The distribution of stocks may capture structural vulnerabilities that the distribution of flows cannot expose, and hence more unequal countries in wealth face greater financial instability. An economic network hypothesis is proposed for interpreting the empirical results.

.pdf OSM replication files

Inequality, Foreign Investment, and Imperialism. SSRNlink

with Branko Milanovic (CUNY Graduate Center) and Suresh Naidu (Columbia)

Abstract: We present an empirical restatement of the classical economic theory of imperialism and the origins of World War I. Using recent data, we show 1) inequality was at historical highs in all the advanced belligerent countries at the turn of the century, 2) rich wealth holders invested more of their assets abroad, 3) risk-adjusted foreign returns were higher than risk-adjusted domestic returns, 4) establishing direct political control decreased the riskiness of foreign assets, 5) increased inequality was associated with higher share of foreign assets in GDP, and 6) increased share of foreign assets was correlated with higher levels of military mobilization. Together, these facts suggest that the classic theory of imperialism may have some empirical support.

.pdf Booth blog post

Instability, Credit, and Inequality in the Twentieth Century

Working Paper: May 2017

Abstract: This paper studies the long-run relationship between financial instability, wealth inequality and aggregate wealth, and household debt. Specifically, it examines whether wealth inequality and aggregate wealth are contributing forces to the level of financial instability in the United States over the 20th century, or whether debt is a more crucial lever. A more traditional role for income inequality is also investigated and compared, in which its long-run increases may add to household debt and, from there, to a financial crisis. Applying a vector autoregression model, which assumes the endogeneity of the variables, and studying any cointegrating relations provides statistical validity to these relationships through rigorous specification and hypothesis testing. Results show that wealth inequality, acting in concert with the large accumulation of aggregate financial wealth, contributes significantly and positively to financial instability. A second long-run relationship is found between household debt and wealth inequality, whereby increases in financial instability are the main adjusting force back to stationary levels. Less robust evidence is found strongly linking household debt to financial instability, though income inequality does significantly contribute to debt long-term. Together, these results emphasize the important role for the distribution of accumulated wealth in the stability of the US economy.

Application of Social Network Analysis in the Estimation of Bank Financial Strength During the Financial Crisis. (April 2014) NLP Unshared Task in PoliInformatics.

with Michelle Morales, David Guy Brizan, Hussein Ghaly, Min Ma, Syed Reza, and Andrew Rosenberg

Abstract: The Financial Crisis of 2007--2008 was a very complex and impactful global event. The goal of this research is to explore the possibility of using a bank’s social relations to estimate a bank’s financial strength. We apply Natural Language Processing techniques to a corpus of financial data released by the NLP Unshared Task in PoliInformatics in 2014 in order to explore and better understand this possibility. Our work begins with the extraction of named entities from the corpus to establish names of people involved in the crisis. We then aggregate the social histories of these individuals from an online collaborative knowledge base: Freebase. Accordingly, we use the social histories of entities to establish social connections between them. We end with a visualization of the connections we found: a presentation of a social financial crisis network.


Effects of Inequality on the US Current Account: A Long-Run Perspective

Working Paper: June 2014

Data .pdf

Income and Wealth Distributions: An Application of Copulas

with Hui Liu

Working Paper: May 2014


Cointegration of US Income Inequality and Financial Sector Size

Working Paper: Dec 2013

Data .pdf

Works in Progress

Income Inequality and Innovation the US Since 1975 with Russell Funk (Minnesota)

Policing Tactics and Income Inequality: Another Perspective on NYPD Stop and Frisk.


CUNY GC Beamer Template

CUNY Graduate Center LaTeX Beamer template that I created (based on a University of Copenhagen theme).

To use, download .tex file and .pdf images and place in same folder.

.tex Image 1 Image 2

Other Publications

Svejk vs. Cimrman: A Comparison in Satire. KOSMAS Czechoslovak and Central European Journal, Vol. 21(3) (2007), 84-89.